Global Social Security
Denmark – Sweden | New Oresund social security agreement
Summary
A new social security agreement has been concluded between Denmark and Sweden to make commuting between Denmark and Sweden easier. The agreement replaces an agreement from 2001. The main feature of the agreement is the change of the applicable reference period for calculating work-split. The agreement leaves many practical questions unanswered.
The detail
New Oresund social security agreement
With the inauguration of the Oresund bridge between Denmark and Sweden in 2000 the Danish and Swedish authorities entered into a special framework agreement to ease access to the joint labour market in the region.
The agreement allows a commuter to work in the country of residence up to (and including 50 %) without triggering social security contributions in that country. To a very large degree, the agreement mirrors the logic in the new EU Framework Agreement for Teleworkers now in place among many EU/EEA countries.
Since the original agreement was concluded, the underlying EU social security coordination rules has been substantially modernized and amended with the latest update taking effect in 2012. Denmark and Sweden have now modernized the Oresund agreement. As the basic agreement text originates from 2001, an update has been highly due in order to align with the underlying EU rules. The main features of the new Oresund agreement on social security are the reference period by which the work-split between Denmark and Sweden is calculated. This is extended from 3 months to 12 months.
This amendment must be seen in conjunction with the bilateral tax agreement between Denmark and Sweden. The tax agreement has an equivalent scope of applicability, meaning that the employee must work 50 % or more in the country of the employer. It has recently been announced that the bilateral tax agreement is to be amended, including a new 12-month reference period expectantly taking effect by 2025. The two agreements on tax and social security will therefore be aligned in this respect.
Some comments and practical considerations
As the social security agreement is now concluded with the current EU social security coordination rules as a backdrop, this leaves a number of ambiguities.
a) The new rules do not include any transition mechanism. This means that it is currently unclear if and how the new agreement can be applied directly to existing cases or whether the new rules should be individually opted into. Such cases include:
1. Commuter cases commenced before 1 May 2024.
2. Oresund A1 certificates that are already in place before 1 May 2024.
3. Oresund opt-in agreements that have already been concluded before (but A1 expired before 1 May 2024).
4. 3-month reference periods that do not align with the date 1 May 2024.
In practice, it is therefore important to keep a close communication with employees for which the above is relevant to ensure that the new rules are only used for cases to which the agreement does in fact apply.
b) The new 12-month reference period mirrors the reference period of the existing EU social security coordination rules, which was introduced in 2010. However, according to recent EU Court case-law the reference period must be equal to the posting period, which has been extended from 12 to 24 months. It is therefore debated whether the current rules mandate a 24-month reference period. Also, it is not clear whether the new rules allow for an agreement-based deviation on this matter. Should a future (EU) guideline provide for a 24-month reference period, or the EU coordination rules be amended in this respect, it is unclear how the current rules align with this.
From a practical perspective, it is important to ensure that the rules are correctly applied, especially for the period until 2025 when the tax agreement is amended.
c) The new agreement continues the preexisting rules under which only sporadic and one-off business trips to other EU/EEA countries and Switzerland are allowed. This limitation is to avoid that the business trips trigger special rules on multi-state activities to apply between EU/EEA-countries besides Denmark and Sweden. The scope for the multi-state rules have been substantially narrowed by the EU Court case-law since the Oresund agreement was originally concluded. The multi-state rules now only apply if the employee habitually performs significant work in each EU/EEA-country. This provides for a substantially broader margin for performing business trips without triggering multi-state rules than originally presumed in the Oresund agreement. This broad margin is however not reflected in the wording of the new agreement. It is therefore unclear whether the new agreement supports such a board margin for business trips or not. Also, it is not clear how to operate the Oresund rules in situations for which the posting conditions are not met. This could for example be newly hired employees.
From a practical perspective, it is important that an individual A1 is applied for in parallel to the Oresund A1, covering each business trip.
d) Under the old Oresund agreement, business trips were allowed to be performed in other “EU/EEA countries and Switzerland” without triggering the multi-state rules. This phrasing has been continued in the new rules. It is therefore unclear whether business trips to the UK are allowed under the new agreement. As such business trips can be managed under the special posting provision protecting from UK social security coverage, it could be presumed that UK business trips are allowed although such an interpretation is in direct contradiction with the specific wording of the agreement.
From a practical perspective it is important that employees that perform UK business trips are monitored with care and that A1 certificates are in place beforehand covering the UK trips.
e) The original Oresund agreement only applied to situations which involved “one employer”. The revised Oresund agreement applies to situations involving “an employer”. This could indicate that the new rules also apply to situations in which the employee has a second employment in the country of residence. However, certain parts of the agreement text do not support such an understanding. As the underlying EU social security rules were amended in 2012 especially to accommodate for this, it will be interesting to see how the new rules will be interpreted in this respect. Also, new rules on transparent working conditions disallows for the employer to ban the employee from taking up a secondary job.
In practical terms it is important to understand the exact limits of the agreement and ensure that this is communicated to the employees.
f) In order for the employee and employer to opt into the Oresund agreement, a standard consent document designed by the authorities must be concluded. As of now (Monday 13 May) an updated standard consent document is not available.
In practical terms it is therefore important to ensure that the correct consent document is signed.
Operating the Oresund agreement within the framework of EU social security rules
The existing EU social security rules provide a substantial flexibility for accommodating cross-border commuter setups.
In the aftermath of Covid-19 a renewed focus on this flexibility has emerged and new standard cases for operating social security for commuters are consolidating. The Oresund agreement therefore provides one of several solutions for managing social security for commuters.
Some major features are:
a) When possible, utilizing a special posting mechanism, which allows for the employee to work above 25 % or 50 % in the country of residence for a limited period of time.
b) Operating an in-depth understanding of how to calculate the work-split, taking into account work time vs workdays, sick days, vacation days, travel days inside and outside the EU/EEA, etc.
Also, as long-distance commuting has grown increasingly popular, the Oresund agreement has become relevant to such cases and is not confined to the Oresund Region only. For example, long-distance commuting between Stockholm and Aarhus could be governed by the agreement.
How can we help?
At a current stage, Vialto Partners is in contact with the Danish and Swedish authorities to settle the above ambiguities and we will provide further advice as these matters resolve.
Furthermore, we are happy to assist with the following:
Contact us
For a deeper discussion on the above, please reach out to your Vialto Partners point of contact, or alternatively:
Adam Rewucha
Director
Gisela Sjödahl
Director
Further information on Vialto Partners can be found here: www.vialtopartners.com
Vialto Partners (“Vialto”) refers to wholly owned subsidiaries of CD&R Galaxy UK OpCo Limited as well as the other members of the Vialto Partners global network. The information contained in this document is for general guidance on matters of interest only. Vialto is not responsible for any errors or omissions, or for the results obtained from the use of this information. All information is provided “as is”, with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information, and without warranty of any kind, express or implied, including, but not limited to warranties of performance, merchantability and fitness for a particular purpose. In no event will Vialto, its related entities, or the agents or employees thereof be liable to you or anyone else for any decision made or action taken in reliance on the information in this document or for any consequential, special or similar damages, even if advised of the possibility of such damages.
© 2024 Vialto Partners. All Rights Reserved.