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Introduction

Tax equalisation is widely used by multi-national companies or groups moving employees from one country to another. It is not a statutory concept but is an arrangement between an employer and employee.

The idea behind tax equalisation is that an employee accepting an assignment somewhere other than in his home country should neither be better off nor worse off from a tax perspective as the result of the move. The individual will continue to be subject to an equivalent level of tax as if he had remained in his home country. The system can apply to those leaving the UK and to those coming to the UK.

A similar system can cover social security contributions, though this is relatively rare as many expatriates remain in their home country social security regimes and are exempt in the host state, in which case there is no need to equalise the net earnings arising from applying the two countries’ contribution rates. Further, a higher level of contributions will generally generate a higher entitlement to state benefits such as a pension in retirement