EU Social Security Regulations Update
EU Social Security Regulations Update
On 1 March 2010, initial guidance1 was released by the U.K.’s HM Revenue & Customs (HMRC) on the practical implementation of the new European Union (EU) social security rules, effective 1 May 2010, as contained in Regulations (EC) 883/2004, 987/2009, and 988/2009.2 It is expected that in the coming weeks HMRC will issue further comments in the form of frequently asked questions and that the social security authorities in other member states will issue their practical guidance.
The latest guidance is summarized below:
• The E101 and E102 will be replaced by a Form A1. (‘E’ forms generally will be revamped, with changes expected to health-care documentation, including the E106, although the European Health Insurance Card will continue to be issued after May 2010.3)
• The U.K. has chosen to opt out of the anticipated extension of the new rules to third country nationals legally resident in a member state. There is no update on whether Iceland, Liechtenstein, Norway, and Switzerland will adopt the new Regulations. It will therefore be necessary to continue to refer to the current rules.4
• The details of how the transitional rules will work in practice are still under discussion and further transitional rules could be introduced before May.
• HMRC refers to the new rules, which will be introduced to determine the social security position for those regularly working in several member states. No additional guidance has been included on the practical application of the 25-percent working time and/or remuneration test.
• HMRC states that where an employee is subject to National Insurance Contributions (NIC) then an employer in another member state will have a (new) obligation to operate NIC even though it does not have a place of business in the United Kingdom.
KPMG Note
Imposing the obligation to operate NIC on non-U.K. based companies represents a shift in HMRC practice and it is not yet understood how this will be practically enforced. It will affect those limited cases where there is no ‘host employer’ that is required to assume these responsibilities on behalf of the overseas employer. The availability of the transitional rules should be considered for any situations under the current regulations where only employee NIC is due.
• A new Decision A2, which is not yet finalized, will replace current guidance in Administrative Commission Decision 181 on the requisite conditions for an E101/A1 under the ‘posting’ rules.
KPMG Note
A draft version of this Decision sets out a minimum period of coverage in a member state’s social security scheme prior to a posting of one month for employees and two months for the self-employed. This may change prior to 1 May 2010, but if implemented as planned, it would represent a change in practice for many member states, although would provide more certainty as to whether an E101/A1 will be available.
• Practical details will follow on how HMRC will use the regulations in the area of cross-border enforcement of social security debts.
• The electronic exchange of information may be in place in 2011, but will not be running in the U.K. until 2012.
KPMG Note
While HMRC’s comments are welcomed, further guidance is awaited from both the Commission, generally, and member states on some open issues, including Decision A2, the 25-percent substantial activity test for multi-state workers, and the impact on transport workers. With only two months remaining until the 1 May implementation date, this will not leave employers much time to act in response to any changes.
Source: KPMG
