Using Totalization Agreements to avoid duplicate social (security) taxes. (Payroll Taxes).

Without some means of coordinating social security coverage, people who work outside their country of origin may find themselves covered under the social security systems of two countries simultaneously for the same work. When this happens, both countries generally require the employer and employee to pay social security payroll taxes.

Paying dual social security contributions is especially costly for companies that have international assignees, as they typically offer tax equalization for their assignees to provide protection to the assignee for additional taxes incurred. The employer's payment of the employee's share of foreign social security coverage is considered to be additional taxable compensation to the employee, thus increasing the employee's income tax liability. Under tax equalization, the employer would generally pay this additional tax, which serves to increase the employee's taxable income and tax liability further.

The employee's foreign social security coverage results in a substantially greater tax burden for the employer than the nominal social security tax alone. Depending on the other country's tax rates, this "pyramid effect" has been known to increase an employer's foreign social security costs to as much as 65 to 70 percent of the employee's salary, as illustrated in Exhibit 1.

Eliminating Dual Coverage

To address …