CONVINUS Global Mobility Insights - Sommer / Summer 2024 2.3. Social security Social security contributions vary a lot from country to country. Where in Denmark the cost is very low for the employer – a flat fee of around EUR 2,100 per year no matter the employee income, Sweden may be considered a high-cost country as the costs are 31.42% of the salary. In Norway the cost for the employer is regionally differentiated and calculated based on the rate applicable in the zone where the employer operates. The rates vary from 0% - 14.1% of the employee's salary. Please note that currently, there is an additional employer contribution of 5% for salaries over NOK 850’000 (approximately EUR 74’000). The Norwegian government has announced that this additional contribution will be removed as of 1 January 2025. From an EU/EEA law perspective, an employee will generally be covered by the social security system of the state where the employer is located. If an employee normally performs work in more than one state, the employee shall generally be covered by the social security scheme applicable in the country of residence, provided that the employee performs at least 25% of the work there. Exceptions do apply. Where an employee is working in several countries, it is important to obtain documentation for social security coverage by obtaining an A1 certificate that should be brought when traveling for work purposes. In some countries, fines are very high if an employee is not compliant with social security or is not able to provide the A1 certificate. 2.4. Transfer pricing Any agreements between related parties should be concluded according to the arm's length principle. There are very particular transfer pricing mechanisms that will ensure that the prices are set correctly depending on the kind of services rendered. 2.5. Permanent establishment and effective seat of management Another risk that must be considered if an employee performs work on behalf of a company in another country, is the risk of creating a permanent establishment. 42
CONVINUS Global Mobility Insights - Sommer / Summer 2024 A permanent establishment will result in tax liability for the company in the foreign country for any income that that should be allocated to the permanent establishment. The assessment of whether a permanent establishment is created depends on a comprehensive evaluation, and the following conditions must be met: Firstly, it must be determined that there is a fixed place of business, implying a requirement for duration over time and a specific location. Secondly, the business must be concluded wholly or partly through this fixed place of business. The company's activities abroad, the employees' function and roll, as well as their responsibilities will be central to this assessment. In gerneral, only preparatory and auxiliary work does not create a permanent establishment. Please note that even if there is no fixed place of business, a permanent establishment may still exist under the so-called agent rule, which is outlined in most tax treaties. According to this rule, a company can be considered to have a permanent establishment if an employee acts on behalf of the employer, has the authority to conclude contracts on behalf of the employer, and exercises this authority. Also, a risk to consider is potential shift of seat of management. If management is effectively performed from another country, the company may end up being deemed fully taxable in this other country on its entire income with potentially exit taxation in the original country. From a Danish perspective, this may be the case if for example management is spending more than half the time in Denmark performing management. From a Norwegian perspective, it is essential whether the board-level management is conducted in Norway, this applies particularly in unclear cases. Sweden on the other hand does not apply the concept of effective seat of management, but bases tax residency on registration. All in all, a permanent establishment or effective seat of management create tax obligations and other obligations for the company in the relevant country and will generally also have influence on the employment conditions for the employee. 43
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