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European Union – European Court Mandates Cross-Border Cooperation to Safeguard Against Double Contributions

GMS Flash Alert 2025-071 | April 8, 2025

The Court of Justice of European Union (CJEU) ruled in case C-421/23 EX1 that social security authorities in the employee’s home and host countries must engage in dialogue when there is a change of country responsible for social security.  This is also valid for cases where A1 certificates have obviously been fraudulently obtained.

The CJEU emphasized the obligations of the EU member states to uphold the principle of “loyal cooperation” in their efforts to make sure that only one country’s social security applies at a time.  The CJEU provided already in earlier rulings2 that an EU member state cannot apply its own legislation on social security unilaterally without engaging the other relevant EU member state in a dialogue first.

WHY THIS MATTERS

The CJEU’s ruling reinforces the principle that cross-border employees should not be subject to double social security taxation.  The authorities must cooperate to help ensure that only one country’s social security applies at a time.  This ruling demonstrates that regardless of the circumstances, the authorities should not make unilateral decisions when they determine which country’s social security applies during a cross-border working situation.

This means that whether an EU member state requires payment of social security retroactively or on the spot, it must collaborate with the social security authority in the home country first.  

Background

The ruling emphasizes the importance of cooperation between social security authorities in relevant member states to help ensure that cross-border workers are not unfairly burdened by overlapping social security obligations.

Whenever businesses are required to enroll their cross-border employees in the social security system in the

host country, without them being “rolled out” of the social security in the home country, the authorities in the host and the home countries must engage in a dialogue about such process.  Only one country’s legislation on social security should apply at a time.

For example, if an EU member state upon a review concludes that its social security legislation should have been applied retroactively, the authority must engage in a dialogue with the relevant authority in the home country first.  It makes no difference whether A1 certificates have been issued by the home country or not or whether A1 certificates have been fraudulently obtained.

Coverage under social security in more than one EU member state for the same working period is forbidden.

Case in Brief

Case C-421/23 EX concerns A1 certificates that were not issued by the competent authority but were manufactured by the employer that sought an exemption from social security contributions in the host country.  The employer continued to contribute to the social security scheme in the home country.

Upon discovery of the A1 certificates being fraudulently obtained, the social security authority in the host country required enrollment of all relevant employees into the social security scheme of the host country.

The Court concluded that even in such situation when A1 certificates are obviously fraudulently obtained, the host country cannot apply its own legislation for social security unilaterally.  The authority must engage in a dialogue with the authority in the home country to prevent, among other things, that both the social security in the home country and the host country apply for the same working period.

The principle of loyal cooperation between authorities always applies, even when A1 certificates are obtained using fraudulent means. 

KPMG INSIGHTS

Even though this ruling addresses the administrative procedures and cooperation between social security authorities, it is a landmark ruling with significant relevance for businesses with cross-border working populations.

This ruling aligns with the overall principles and objective of the European rules for social security.  One of the main objectives of the European rules for social security3 is to enhance free movement of workers across borders by making sure that only one country’s rules for social security apply at a time.

Should companies face situations where their cross-border employees are obliged to contribute to the social security systems of both their home and host countries, they should reach out to their qualified social security taxation advisers or a member of the social security network with a member firm of KPMG International (see the Contacts section).

FOOTNOTES:

1  Court of Justice of European Union: Case C-421/23 EX, 23 January 2025.

2  Court of Justice of European Union: C-620/15 A-Rosa Flussschiff, 27 April 2017.  In this ruling the Court underlined that cross-border workers must be covered by one country’s social security at a time.  

3  European Union: Regulation 883/2004/EC on coordination of social security systems, 29 April 2004. 

Contacts

Daida Hadzic
Daida Hadzic

Director, Washington National Tax – Global Mobility Services

KPMG in the U.S.

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*The above information is not intended to be "written advice concerning one or more Federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230 as the content of this document is issued for general informational purposes only.

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