Jun 28, 2016 - benefits. The UK currently applies the European. Social security implications for internationally mobile
Mobility: tax alert June 2016
United Kingdom Social security implications for internationally mobile workers following the vote to leave the EU Executive summary The UK’s decision to leave the EU could, in time, significantly change the social security landscape for both UK residents working within the EU, and EU residents working in the UK. Whilst there is no immediate change to either the European social security regulation (EC No. 883/2004), or the previous regulation (EC No. 1408/71) that covers non-EU nationals, both would cease to directly apply once the UK formally leaves the EU. This could impact the periods for which continued home state coverage is available for posted workers, as well as the ability to access contribution related benefits (such as child support and retirement benefits) and health care coverage. In the short term, the UK’s participation in both EU social security regulations will continue and companies should continue to apply for certificates of coverage (A1/E101s) as normal. Key considerations In general, the EU social security regulations provide for EU nationals and persons who are legally resident in a member state to be subject to the legislation of a single member state. The regulations also help with the coordination of social security systems by providing a framework for continuity and protection of contributory benefits such as old-age pensions and unemployment benefits. The UK currently applies the European
coordination rules to all moves between the UK and the EU. Once the UK leaves the EU the above regulations would cease to directly apply. Should the UK not come to some formal agreement with the EU about a continued application of the EU regulations (similar to the arrangements currently in place that allow Switzerland and the EEA (European Economic Area) countries to apply the EU rules) then the old bilateral social security agreements would need to be relied upon. Some of these bilateral social security agreements were concluded over 50 years ago before the EU social security coordination rules were in force. The UK has social security agreements with 20 of the 31 countries that currently apply the EU regulations but there is nothing in place for the remaining 11. Even where there is a bilateral agreement to fall back on, in the absence of these being renegotiated, there will still potentially be significant social security challenges for companies due to the fact that: Some of these agreements allow for shorter periods of continued home country coverage for posted workers than typically available under EU regulations; Many only apply to nationals of the two countries party to the agreement (for example a US national sent by a UK company to work in Paris would not be covered by the bilateral UK/France agreement); and
None of the agreements were designed to cover today’s work arrangements for which the EU regulations have only recently been updated (such as employees working regularly in multiple EU countries and employees employed by offshore or non-EU companies).
Where the bilateral agreements do not cover a particular work scenario, or where the other country is one of the 11 where no bilateral agreement with the UK exists, then each country’s domestic legislation would apply. This could result in dual social security liabilities, increasing cost and at the same time, potentially creating additional compliance obligations for the employer. Whilst companies will be focusing on what this means in terms of corporate compliance it must not be forgotten that social security is different to tax in that it can directly affect individuals’ state benefits. Possible impacts on the individual would be: Access to child support and similar contributory benefits may be affected; The ability to aggregate periods of contribution coverage throughout the EU to satisfy minimum qualifying conditions for retirement benefits may also be limited; and Access to state health care coverage when working in another country covered by the EU regulations may not be possible. Next steps Whilst employers will need to wait to gain clarity on the full impact in this area, it is worth considering now what the potential changes could be for internationally mobile workforces, both in terms of compliance, state benefits and policies. EY will publish further analysis on the social security changes as they occur.
EY | Assurance | Tax | Transactions | Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. Ernst & Young LLP is a client-serving member firm of Ernst & Young Global Limited operating in the US. © 2016 EYGM Limited. All Rights Reserved. EYG no. DN0982 ED None This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice.
ey.com
International Social Security Services Mike Kenyon Tel: +44 (0)20 7951 2583 Email:
[email protected] Gary Chandler Tel: +44 (0)20 7951 1280 Email:
[email protected] Gill Reay Tel: +44 (0)20 7951 7940 Email:
[email protected]
2
Mobility: tax alert
