20 February 2023
Summary
Where a payment is made after the person has changed States of social security registration, a potential conflict of social security jurisdictions must be resolved since no sourcing rule is expressly stated in French social security laws.
▪ In the absence of a statute that treats cross-jurisdictional situations, the French social security authorities’ habitual position is that social security contributions are due in the State where the employee is affiliated when she/he receives the payment (date of payment approach), regardless of the activity at the source of the income. As a result, using a sourcing approach to determine social security liability in a cross-border situation could be rejected by the French social security authorities.
This may cause situations where double social security contributions would be due in two different countries whereby the other country involved would apportion local social security contributions on the portion of the remuneration related to the activity pursued in that country. This conflict was highlighted in our earlier insight (19 October 2021 Apportionment Insight).
▪ However, the above position is mitigated by recent rulings obtained by Vialto in France from the URSSAF (French social security taxes recovery fund) concerning non-qualified equity plans (RSU and Stock-Option) plans as well as long term incentive cash plan (bonuses).
One of the rulings was rendered in the context of RSUs to an employee who was employed subsequently in the UK and in the USA at the award dates and then who was transferred and localized to France during the vesting period where he was subject to the French social security scheme at the payment date (the plan was not qualified from a French perspective and hence qualified as salary in France).
URSSAF ruled out that a sourcing approach could be applied by the company and that the acquisition gain could be considered as being relating to 3 distinct periods (UK, US and France) so that French social security contributions should be due only on the portion of the gain related to the activity pursued in France.
This sourcing approach, whereby only the French source of the deferred compensation should be subject to French social security contributions, is nevertheless subject to three cumulative conditions:
1. The individual is subject to the French social security scheme at the time of payment
2. The foreign portion of the deferred income is subject to social security contributions in the other country.
3. The foreign portion of the deferred income is ultimately borne by the foreign entity (even through reinvoicing).
The takeaway
Rulings are nominative in France and do engage the administration neither outside the specific case submitted to the authorities nor to third parties. Social security rulings cannot be deemed as binding outside the cases in question. However, they may be an indication of a change of the French authorities’ position. No official guidelines have been published yet by the French social security administration confirming the application of the sourcing approach position from a social security perspective for all deferred compensation. Vialto in France is currently on the process of asking clarifications, on a more general way, to the French administration concerning the social security treatment of cross-border payment situations. We will, of course, keep you informed.
In the meanwhile, it should be reminded that without such a ruling, URSSAF remains free to apply another position (and historically it was a date of payment approach, not a sourcing approach). Therefore, the sole way for a company to secure the sourcing position for its employees is to file a ruling (one ruling for the company, no need to file a ruling for each individual scenario). The response will be binding for the administration.
How we can help
We notice that allocation of deferred compensation especially equity incomes based on activity in multiple jurisdictions is usually performed by companies only at the personal income tax level in France. However, as set forth above, there may be also an opportunity for companies to apply a sourcing approach for social security taxes. Experts at Vialto in France will also be able to provide you with further guidance on whether such apportionment may be contemplated in your situation, and if so, how to secure this position with the French social security authorities and implement it through payroll.
Contact us
Please reach out to your Vialto social security team in France to discuss further: Arzhvaël Le Fur and Morgane Texier.
Also, please feel free to reach out to the Vialto Partners Social Security Leadership team:
● Adam Rewucha and Wendy Toonen, Northern European Social Security Lead
● Natalia Graf and Morgane Texier, Western and Southern European Social Security Leads
● Barbara Kolimeczkow, Eastern European Social Security Lead
● Gary Chandler, UK and Ireland Social Security Lead
Further information on Vialto Partners can be found here: www.vialtopartners.com
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