1. NASPP Regional Conference: What the FICA?
Amy Reina Deloitte Tax LLP
Sandy Shurin Deloitte Tax LLP

2. Agenda What is the issue? Social Security Internationally US FICA
Brazil
Germany
United Kingdom
Approaches to Addressing Global Social Security Obligations

3. What is the issue?

4. What is the issue?
Companies moving employees across borders, in which they receive compensation that is earned in more than one jurisdiction
How to obtain data to track employees and ensure employer tax compliance in more than one jurisdiction and
Dealing with multiple sets of social security regulations and obligation
Keeping up with tax legislative changes

5. Employee Social Tax Globally
* Effective social tax rates on US $100,000 of compensation

6. Employer Social Tax Globally
* Effective social tax rates on US $100,000 of compensation

7. Who/What do we mean by “mobile employee”…?
Any employee that provides services in more than one tax jurisdiction:
Expatriates
Permanent Transfers
Temporary Assignees
Split Jurisdiction / Split Payroll Employees
Cross border Commuter Employees
Business Travelers

8. Globally mobile employees – What is an equity award trailing liability?
An employee may be granted an equity award in one country, vest in that award in a second country, exercise in a third country, and ultimately sell the shares in a fourth country
There could be employer reporting and withholding as well as individual tax implications in each jurisdiction
Brazil
Grant
Vest
Exercise
Sale
Notional Exercise
Belgium
Australia
Hong Kong
United States
Stock options 1 2 3 4 5

9. Global issues to consider – Income Tax
Timing of taxation varies between countries:
Most countries tax options at exercise
Some countries tax at grant, vest, or sale
Exit and trailing taxes
Amount subject to tax varies between countries:
Even for those that tax options at exercise, there may be differences between the statutory definition of fair market value
Income tax sourcing rules vary

10. International Social Security - Basic Principles
Why have Social Security Treaties? What is the rationale behind them?
Contribution related, but benefits driven
Generally concluded when there bi-lateral movement of people
Are there any consistent themes in international agreements?
Home country employment
Track record of paying contributions in home location
Typically 5 year maximum
Special Circumstances

11. Global issues to consider – Social Tax
The issues associated with income tax withholding may impact social security as well
Social security rules not necessarily align with income tax rules
Qualified Plans, favorable Grant Terms, and Elections
Totalization agreements
Treatment of cash may differ from shares

12. Social Security Internationally

13. United States

14. United States
Issue: Company that has employees, both nonresident aliens (“NRAs”) and United States citizens and greencard holders (“US Taxpayers”), who perform services for the company inside and outside of the United States. Income tax sourcing rules not expressly extended to social security rules.
Excluded from wages for FICA purposes amounts paid by an American Employer outside the United States to a non-US Taxpayer or by an employer outside the United States that is not an American Employer.
One approach is amounts subject to FICA taxation in the same proportion that wages are subject to federal income taxation
Another approach may be referred to as the “all or nothing approach”
Hybrid approach

15. Brazil

16. Brazil
Historically, view has been that where the costs are recharged to or borne by the Brazilian entity, income and social tax is due and there is withholding and reporting by the Brazilian entity; and conversely, no social tax absent a recharge.
Increased audit activity in recent years regarding payment and collection of social tax with respect to compensation paid abroad.
Companies’ local practice varies based on risk tolerance.

17. Germany

18. Germany
General rule for inbounds – social security payable on German-source income (note wage caps)
General rule for outbounds – social security payable on German-source income; however, keep in mind “March clause”

19. United Kingdom

20. United Kingdom
UK social tax obligation should consider participant’s social tax status at the time of grant and taxable event; other variables to account for:
Approved plans
Certificate of Coverage / E101
Local hire vs. assignment
Totalization agreements
Age
Joint National Insurance election

21. Approaches to Addressing Global Social Security Obligations

22. Approaches to Addressing Global Social Security Obligations
Coordinate Mobility, Tax, Payroll and other impacted stakeholders
Assess obligations on an employer and employee-specific basis
Organization structures, local agreements, and other factors may make your situation unique
In the absence of definitive legislation addressing certain scenarios, assess risks and possible solutions that can reduce risk exposure, such as local rulings.
Develop network of resources knowledgeable in local legislation, market practice, and views of regulators
Determine whether bespoke policy or other solution is necessary
Review plan optimization and cost savings opportunities

23. Questions?

24. Contact information
Amy Reina Senior Manager Deloitte Tax LLP Sandy Shurin Manager Deloitte Tax LLP

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