Economic crime report 2004 - Ekobrottsmyndigheten

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.
According to the report, the work of the Nationwide Project demonstrates
that the organized contracting out of undeclared labour by the construction
industry has reached the point that radical legislative changes are
required to deal with it. In the autumn of 2001, the Ministry of Finance
commissioned SKV to study the prospects for adopting a system whereby
withholding taxes would have to be collected for subcontractors. SKV
report 2002:6 described various options for designing the system, such
as a voluntary vs. compulsory approach. The Government appointed a
Construction Commission in February of 2002. The subsequent material
expanded upon the legislative proposal, as well as offering recommendations
where the SKV report had presented alternative solutions.
The commission proposed a system of compulsory withholding taxes for
building and construction subcontractors and for firms that contract out
such workers. The system is to cover both Swedish and foreign contractors
and subcontractors. The amount withheld, which is to be 40% of compensation
for labour costs, is to be deposited in a special SKV account,
while the remaining invoice amount is paid to the contractor.
With respect to VAT, the commission proposed a compulsory “reverse tax
liability” for both Swedish and foreign buyers. Although Sweden would
have to apply for a special exemption pursuant to Article 27 of the EC’s
Sixth VAT Directive, the commission believes that the EU has already
established a precedent for granting such a request.
Adoption of the VAT reform is dependent on a decision of the Swedish
Parliament and the timing of EU approval.
The commission also proposed that a ROT (repair, renovation, extension)
deduction be enacted to encourage households to hire legitimate
businesses. The deduction went into effect in April 2004.
Putting together a legislative proposal that can work well for everyone
involved has proven very difficult. The latest reported development is the
appointment of a special joint action group – represented by various ministries,
the construction industry and SKV – to design the system.
Taxation on a Standardized Basis
One possible way of discouraging evasion in certain sectors is to adopt
some kind of taxation on a standardized basis for the smallest businesses.
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