U.s. Totalization Agreement
Totalization agreements are popular with U.S. companies because they exempt employers from paying a dual social security tax. According to a regular study of net tax savings by the Office of International Programs of the Social Security Administration (SSA), U.S. companies and their employees save about $1.5 billion a year in foreign social taxes based on these agreements. These tax savings help make U.S. operations more profitable around the world, while improving the competitiveness of U.S. trade. The totalization agreements also excuse foreign workers temporarily sent to the United States for payment of U.S. Social Security taxes. The result is annual savings of approximately $500 million for the foreign workers involved and their employers. These tax savings make the United States a more attractive destination for foreign capital, thereby encouraging foreign direct investment.
Double tax debt may also affect U.S. citizens and residents working for foreign subsidiaries of U.S. companies. This is likely to be the case when a U.S. company has followed the common practice of entering into an agreement with the Treasury, pursuant to Section 3121 (l) of the Internal Income Code, to provide social security to U.S. citizens and residents employed by the subsidiary. In addition, U.S. citizens and residents who are independent outside the United States are often subject to double social security taxation, as they are covered by the U.S. program, even if they do not have a U.S.
business. In 1973, the Minister of Health, Education and Welfare, Caspar Weinberger, and his Italian counterpart signed the first U.S. totalization agreement. Although the Italian government quickly ratified the agreement as a treaty, Congress had not yet adopted an approval status; That is why the United States has not been able to implement the agreement. After much deliberation, congress passed amendments to the Social Security Act in 1977, which contained an approval status allowing the agreement with Italy to enter into force.12 Attempts have been made in recent years to advance legislative proposals to amend Section 233 to broaden the scope of totalization for the sake of American interests while maintaining the program`s traditional focus on actuarial balance and prudence. financier. However, such legislative proposals have not been highly appreciated and, to date, totalisation partnerships continue to focus on Europe, with a few notable exceptions. 1 The same applies to workers whose employer temporarily transfers them to a company that has an agreement with the Ministry of Finance under Section 3121 (l) of the internal income code.
These companies are generally referred to as « affiliates » and must pay U.S. Social Security taxes on behalf of all U.S. citizens or residents employed by that subsidiary abroad. In order to eliminate the double taxation of taxes on social insurance and Medicare, the United States has entered into international agreements with 25 foreign countries (so-called « totalization agreements »). Totalization agreements exempt the federal Insurance Contributions Act (FICA) tax salaries, including social contributions and Medicare taxes, where a person`s income under a foreign country`s social security system is subject to similar taxes or charges for similar purposes. A similar exemption is due to taxes under the Employment Contributions Act (SECA). Any agreement (with the exception of the agreement with Italy) provides an exception to the territorial rule, which aims to minimize disruptions in the career of workers whose employers temporarily send abroad. Under this « self-employed » exception, a person temporarily transferred to service for the same employer in another country is covered only by the country from which he or she was seconded.
