On January 17, 2017, US-Slovenia Totalization Agreement was signed in Slovenia. Ms. Anja Kopac Mrak, the Slovenian minister of labor, family, social affairs, and equal opportunities, signed on behalf of Slovenia. Mr. Brent Hartley, US Ambassador to Slovenia, signed on behalf of the United States. Signing of the US-Slovenia Totalization Agreement represents a major step toward finalization of the agreement, but there is still a long road ahead.
US–Slovenia Totalization Agreement: What is a Totalization Agreement?
A Totalization Agreement is essentially a Social Security Agreement between two countries aimed to eliminate the burden of dual social security taxation for individuals and businesses who operate in both countries. The Totalization Agreements are authorized by Section 233 of the Social Security Act.
US–Slovenia Totalization Agreement: Why Is It Relevant to US and Slovenian Workers?
As I explained above, a Totalization Agreement is meant to prevent workers and their employers from paying social security taxes on the same earnings in both countries that are signatories to the Agreement. Typically, the potential for this type of double-taxation arises when a worker from country A works in Country B, but he is covered under the social security systems in both countries. In such cases, without a totalization agreement, the worker has to pay social security taxes to both countries A and B on the same earnings.
The US-Slovenia Totalization Agreement, once it enters into force, will prevent the dual taxation by specifying the rules that will determine which of the two countries will impose a social security tax on worker while the other country will be prohibited from doing so. Furthermore, it should be mentioned that the US-Slovenia Totalization Agreement will allow the combination of work credits earned in both countries for the purposes of benefit eligibility determination. Finally, the Certificate of Coverage should be available under the US-Slovenia Totalization Agreement.
US–Slovenia Totalization Agreement Will Become Effective When Both Countries Ratify It
Right now, only 26 Totalization Agreements are in force between the United States and another country: Australia, Austria, Belgium, Canada, Chile, the Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Japan, Luxembourg, the Netherlands, Norway, Poland, Portugal, the Slovak Republic, South Korea, Spain, Sweden, Switzerland and the United Kingdom.
The reason why the number of Totalization Agreements is so low lies in the fact that it takes a long time to negotiate them and, even more importantly, ratify them. The benefits offered by such an agreement are very extensive and may have to overcome significant domestic opposition before they are ratified. For example, the Totalization Agreement with Mexico was signed on June 29, 2004 and it still has not been ratified (nor is it likely to be in the short future due to significant political position within the United States).
Hence, the fact that the US-Slovenia Totalization Agreement has been signed does not mean that it will be ratified soon. Moreover, it has an important competitor in the form of the US-Brazil Totalization Agreement that was signed on June 20, 2015 and still has not been ratified. Nevertheless, the signing of the US-Slovenia Totalization Agreement was a prerequisite step toward its eventual ratification.
Given the important of the US-Slovenia Totalization Agreement, US international tax lawyers need to closely follow any developments with respect to it.