Expatriate Tax Alert: Dutch-Indian social security treaty

On December 1, 2011 the social security treaty between the Netherlands and India will enter into force. This social security treaty contains provisions that affect the existing social security legislation of both the Netherlands and India, which for future purposes will be linked to one another. The social security treaty will prevent an individual from being covered by the social security system of both countries at the same time (and paying social security premiums in both countries) or not being covered by either country at all. When the social security treaty has entered into force, it can have consequences for an individual in a current or future cross border working situation between India and the Netherlands.

Persons covered
The social security treaty applies to any individual who is or has been subject to the Indian or Dutch social security legislation. Not only an individual with the Indian or Dutch nationality can be covered by this social security treaty. Third country nationals who are or have been subject to the Indian or Dutch social security legislation are also covered by the social security treaty.

Matters covered
The social security treaty covers various Indian and Dutch insurances and health care systems. For India it covers certain old age and survivors pension, permanent total disability pension and social security for employees. For the Netherlands, it covers national insurances, employee insurances and health insurance.

Main rule regarding the applicable legislation
The purpose of this social security treaty is to ensure that only one social security legislation is applicable to an individual in a cross border working situation between India and the Netherlands. The main rule is that an individual is subject to the social security system of the country where he performs his activities (working country). In this respect no distinction is made between an individual working as an employee or a self-employed person.

Exceptions to the main rule regarding the applicable legislation
In certain situations, exceptions will be made to the above mentioned main rule. For example in the case of a secondment. If an employee is temporarily seconded by his employer (who is situated in one country) to the other country, the social security system of the country of origin remains applicable. A secondment is considered temporary if the secondment period does not exceed 60 months. In exceptional situations the competent authorities may agree to extend the 60 months period.

In addition, exceptions to the main rule are made for a self-employed person who temporarily works as a self-employed person in the other country (working country), members of diplomatic missions, members of consular posts, civil servants and employees on board of a sea-going vessel.

Transitional provisions
For this social security treaty there are currently no transitional rules available. Therefore, it is unclear at the moment how existing situations will be treated. If the policy of the Dutch social security authorities in EU situations will be applied, it would be possible to bring seconded employees under the coverage of the new social security treaty, provided that all other secondment conditions are met. Of course, the Indian authorities will also need to agree to this.

Social security benefits
The social security treaty includes provisions about Indian and Dutch social security benefits. These provisions are however limited to exchange of information between the Netherlands and India. It does not provide rules for counting periods of insurance and rules for medical care.

Family members
In principle this social security treaty also applies to family members who accompany the employee or the self-employed person. This means that family members of seconded employees or self-employed persons will be covered under the social security system of the country where the employee or self-employed person is covered, unless the family members exercise professional activities.

Action points
It is advisable to check the following:

• Review your current expat population in order to determine all consequences of the new Dutch-Indian social security treaty
  
• Structuring of the social security position for new situations starting as of December 1, 2011 might be possible and advantageous. Amendment of the employment agreement(s) and/or secondment policy is recommended
  
• Please be aware of the existing situation. It is expected that transitional provisions will be published soon
  

Questions
For more information about the new Dutch-Indian social security treaty and the possible consequences in any specific situation, you can contact your tax advisor or one of our specialists at: Grant Thornton Expatriate Services B.V. at phone +31 20 547 57 57 or e-mail expatriate@gt.nl.