WRITTEN QUESTION E-1839/98

by Jean-Antoine Giansily (UPE) to the Commission

(12 June 1998)

Subject: Undeclared work in the building and allied industries

Each year, "moonlighting" destroys several hundred thousand jobs in the building and allied industries in Europe.

Its prime cause is the high cost of work done by undertakings, which have to pay social security contributions and a prohibitive VAT rate, compared with undeclared work, which has to pay neither.

The consequences are tax evasion (e.g. VAT and company tax) on a massive scale and a curtailment of social security contributions.

In its recent communication on undeclared work (COM(98) 219), the Commission confirms the scale of the phenomenon and the adverse impact it has. It reviews the various measures taken to combat this scourge and emphasizes the quality and effectiveness of the decisions taken in this respect by the Netherlands.

In that country, the VAT payable on building renovations, especially dwellings, has been set at the lowest rate. That measure was enough to reduce moonlighting, and overall tax revenues did not suffer because the tax base expanded. The Commission emphasizes that the Netherlands therefore did not take any measures to step up sanctions and controls to combat undeclared work.

In this connection, can the Commission say whether it is considering issuing a recommendation that a measure similar to that adopted by the Netherlands should be introduced generally in respect of building renovations carried out in all the Member States of the European Union?

If so, when would the Commission be likely to submit an appropriate proposal?

If not, since sanctions and controls are proving to be ineffective, why not?

Answer given by Mr Flynn on behalf of the Commission

(31 July 1998)

In its communication on undeclared work(1), the Commission states that the establishment of a comprehensive targeted strategy is essential if combating undeclared work is to be effective and that the strategy should involve a mix of elements. This policy mix will inevitably vary from one Member State to another. Effective implementation and enforcement remain an important part of the overall strategy whatever the measures chosen. High taxes on labour and high social security contributions are two of the factors identified as influencing undeclared work.

The Commission hopes and expects that the Member States, Community institutions and social partners will participate in the debate on the causes and extent of undeclared work, the identification of best practices in combating it and the possibility of co-ordinated Community action. If the outcome of this debate indicates that further action at Community level would be appropriate, it could be considered in the context of the 1998 joint report and the employment guidelines for 1999. In this event, there could be joint monitoring of measures taken in the field of undeclared work and identification of best practices. The Dutch experience of reducing VAT (which is very limited in scope) could be considered a very interesting case of good practice and as such is welcomed by the Commission.

Implementation of several of the 1998 employment guidelines, such as those on developing entrepreneurship and encouraging adaptability, will help to discourage undeclared work. One guideline specifically encourages Member States to examine, without obligation, the advisability of reducing the rate of VAT on labour-intensive services not exposed to cross-border competition. The Commission is considering coming forward with a draft directive along these lines, and has invited the Council to express its support for this idea. At the moment, no agreement has yet been reached.

(1) COM(98) 219 final.