The first step in making a double taxation convention useful is to determine which of the two countries (the so-called “contracting states”) you reside for the purposes of the convention. If you are only a tax resident in one of the countries, this is the country in which you reside under the national law of that country. However, it is possible to reside in both countries. In this case, you should refer to the Tiebreaker tests at (normally) Article 4. Once you have done so, you can understand what is meant by “resident of a contracting state.” You can also write to this address if you want to propose negotiating new agreements with certain countries. In developing its negotiating plans, the SSA attaches considerable importance to the interests of workers and employers who will be affected by potential agreements. In this case, this means that a social security pension paid to a person residing in the United Kingdom (as the meaning of the agreement) is taxable abroad only in the United Kingdom. Workers who are exempt from U.S. or foreign social security contributions under an agreement must document their exemption by obtaining a country coverage certificate that continues to cover it.
For example, an American worker temporarily posted to the UK would need a SSA-issued coverage certificate to prove his exemption from UK social security contributions. Conversely, a UK-based employee working temporarily in the Us would need a certificate from the British authorities to prove the exemption from the US Social Security Tax. Not all personal or private pensions are taxed under the “Other Income” section. For example, the Double Taxation Agreement between the United Kingdom and Germany applies specifically to pensions for which contributions in a given country receive 15 years of tax relief under Article 17, paragraph 3. Don`t forget to review the text of the treaty in question. Double tax debt may also affect U.S. citizens and residents working for foreign subsidiaries of U.S. companies. This is likely to be the case when a U.S. company has followed the common practice of entering into an agreement with the Treasury, pursuant to Section 3121 (l) of the Internal Income Code, to provide social security to U.S.
citizens and residents employed by the subsidiary. In addition, U.S. citizens and residents who are independent outside the United States are often subject to double social security taxation, as they are covered by the U.S. program, even if they do not have a U.S. business. In 2019, the United States and the French Republic recalled, through diplomatic communication, the agreement that the taxes of the French Confederation of Generalisee Contributions (CSG) and the Contribution to the Repayment of Sociate Debt (CRDS) are not social charges covered by the social security agreement between the two countries. As a result, the IRS will not challenge foreign tax credits for CSG and CRDS payments on the basis that the social security agreement applies to these taxes. If they are covered by the pension section, they are normally only taxable in the UK.
However, some contracts (such as the double taxation agreement between Great Britain and Germany) explicitly stipulate that these pensions are taxable only in the country making the payments. Here, too, you need to look carefully at the text of each agreement.