The dual purpose of tabulation agreements is fulfilled in different ways in different agreements, making it imperative to understand the concept and specifications of each individual hosting agreement. Many tabulation agreements follow the same general pattern of contribution and time requirements. Below is a description of the types of agreements concluded by certain countries. ** Spain and Portugal are covered both by a bilateral agreement and by the social security treaty of the Ibero-American Organization. The SSA counts, within the framework of a table agreement, the periods of insurance that the employee has acquired under the social security program of a contracting country. Similarly, a country that is party to an agreement with the United States will consider covering an employee under the U.S. program if necessary to qualify for that country`s social security benefits. If the combined credits in both countries allow the employee to meet the eligibility criteria, a partial benefit may be paid based on the proportion of the employee`s total career completed in the paying country. The goal of all the United States. Aggregation agreements aim to eliminate dual social and tax coverage while maintaining coverage for as many workers as possible in the system of the country where they are likely to be most connected, both at work and after retirement.
Each agreement aims to achieve this objective through a set of objective rules. Any foreigner who wishes to apply for an exemption from U.S. aggregation agreements under a tabulation agreement protects the benefit rights of workers who share their careers between the two countries by allowing each country to count periods of social security coverage acquired in the other country as needed to establish entitlement to benefits. Periods of coverage are combined only for persons who have some minimum coverage but who are not sufficient to meet the normal conditions for entitlement to benefits. In the United States, for example, workers born after 1928 who have never been disabled are generally required to purchase 40 credits, called coverage quarters (QC), in order to be eligible for a Social Security pension benefit.5 If a person has purchased at least 6 QC but less than 40 QC, aggregation agreements provide that they must have their working hours in a partner country with a tabulation agreement at the time of the determination of the entitlement to benefits is taken into account. Since the late 1970s, the United States has established a network of bilateral social security agreements that coordinate the U.S. social security program with comparable programs in other countries. This article gives a brief overview of the agreements and should be of particular interest to multinational companies and people working abroad during their careers.
To date, the United States has entered into tabulation agreements with 28 countries; 3 additional agreements have been signed but are not yet in force. A list of all tabulation agreements can be found in Appendix C. Eu rules apply to all EU member states, so if there are bilateral agreements, they are not mentioned here. The enabling law contained in the 1977 amendments is section 233 of the Social Security Act (42 U.S.C§ 433),13 which allows the president to enter into bilateral tabulation agreements with countries that have a social security system similar to that of the United States. Section 233 establishes totalization agreements as agreements between Congress and the executive branch that have essentially the same legislative force as treaties, but do not require full ratification by the Senate. For an agreement to enter into force, the President must submit it to Congress, where he must rest for 60 days before both chambers, during which one or both chambers meet; this period must elapse without either House adopting a resolution of disapproval. Totalization agreements are popular with U.S. companies because they exempt employers from double Social Security taxes.
According to a regular study of net tax savings conducted by the Social Security Administration`s (SSA) Office of International Programs, U.S. companies and their employees save about $1.5 billion in foreign taxes on Social Security each year through the agreements. Such tax cuts help make U.S. operations more profitable around the world while improving the competitiveness of U.S. trade. The totalization agreements also exempt foreign workers who are temporarily sent to the United States from paying U.S. social security taxes. This translates into annual savings of approximately $500 million for affected foreign workers and their employers.
These tax savings make the United States a more attractive destination for foreign capital, encouraging foreign direct investment. In 1977, labor migration patterns differed significantly from those of 2018, and most U.S. multinational trade and business relationships at the time were concentrated in Western Europe. As a result, Article 233 was adapted to the social security systems of Western Europe at the time. The first two agreements signed by the United States with Italy and West Germany preceded the adoption of Article 233. This scheme was therefore designed in the light of the social security systems of these two countries. Both countries had traditional Bismarck pay-as-you-go systems that covered virtually their entire workforce. Article 233 provides that the President may conclude totalization agreements only with countries with universal social security systems that provide for regular benefits or the actuarial equivalent thereof on account of old age, disability or death. 2 An exception to this rule is the agreement with Italy, which allows certain transferred workers to choose the social security system under which they will fall. No other U.S. tabulation agreement contains a similar rule.
Workers who are exempt from the host country`s social security contributions under a aggregation agreement must document their exemption by obtaining a certificate of coverage from the country that continues to cover them. This last point concerns multinational organisations that compensate for social security – i.e. minimise the expatriate`s financial gain or loss due to the unique consequences of an international mission – and therefore have an additional financial burden if they fulfil the employee`s social security obligation in the host country as part of its expatriation policy. In addition, the tax legislation of the host country may consider such a payment by the employer as taxable compensation to the transferee – which further increases the overall financial burden of the company. In situations where there is no aggregation agreement between the two countries, additional costs may be incurred by the employer. These additional costs are as follows: Although the agreements with Belgium, France, Germany, Italy and Japan do not use the residence rule as the main determinant of self-employment coverage, each of them contains a provision guaranteeing that employees are insured and taxed in a single country. For more information about these agreements, please visit our website here or write to the Social Security Administration (SSA) in the Closing section below. Workers who have split their careers between the United States and another country may not be eligible for retirement, survivor, or disability insurance (pensions) benefits from either or both countries because they have not worked long enough or recently enough to meet the minimum eligibility criteria. Under an agreement, these workers may be eligible for U.S. or foreign partial benefits based on combined or “totalized” coverage credits from both countries. In order to prove to the tax authorities of a host country that an employee is exempt from paying social security taxes in that country, he (or his employer) must keep a certificate of coverage and, if necessary, present it. The certificate is a document issued by the country whose laws continue to apply to that person in accordance with the rules of the agreement.
The agreements designate the bodies responsible for issuing these certificates in each country. Each agreement (with the exception of the agreement with Italy) contains an exception to the territoriality rule, which aims to minimise disruption to the careers of workers whose employers temporarily post them abroad. Under this exemption for “freelancers”, a person who is temporarily transferred to work for the same employer in another country remains insured only in the country from which he or she was posted. For example, a U.S. citizen or resident who is temporarily transferred by a U.S. employer to work in a contracted country will continue to be covered by the U.S. program and will be exempt from coverage of the host country`s system. The employee and employer only pay contributions in the United States…