Economic crime report 2004 - Ekobrottsmyndigheten

A CLOSER LOOK AT UNDECLARED WORK, VAT FRAUD AND
AGENTS WHO AID ECONOMIC CRIME
(SPURIOUS ADVISERS AND TAX HAVENS)
Undeclared Work
Although available resources required that the first phase of the threat
analysis focus on cash sectors, undeclared work is also a phenomenon in
invoicing sectors, particularly the construction industry in its broadest
sense. Logically speaking, the next phase should examine the other sectors
as well.
This type of crime involves withholding and failing to declare cash
income, thereby affecting not only income tax assessment, but VAT and
social security payments as well. One serious consequence is that companies
hire undeclared labour to reduce costs and thereby become more
competitive vis-à-vis legitimate businesses. The particular ways of concealing
such income are highly specific to each sector.
SKV is conducting a nationwide project to determine the extent to which
major construction efforts throughout Sweden use undeclared labour.
A report issued by the project notes that certain segments of the construction
industry have incorporated tax evasion in a way that may be
described as the organized contracting out of such labour. The use of
various constellations of independent contractors – subcontractors, staffing
companies and other intermediaries at different level – makes it more
difficult for SKV to detect and investigate tax evasion schemes. The phenomenon
is not new in itself. Previous reports on contracting sectors have
also revealed widespread tax evasion calling for legislative changes. The
current statutes on how labour is contracted out have made SKV’s job
even harder when it comes to heading off this type of evasion.
The project has found evidence of widespread payment of undeclared
wages in the construction industry. The assessments that have been made
so far suggest that such wages amount to SEK 2.5-3 billion annually in
the areas covered by the project. While declining to estimate the extent
of undeclared work in the industry as a whole, the report stresses that
it is clearly unsettling. As the result of uncollected payroll tax, personal
income tax, and VAT, the state loses annual revenue amounting to 85%
of undeclared wages, or SEK 2-2.5 billion. The scope of this problem has
distorted competition in some cases.
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