Communication from the Commission to the Council, the European Parliament, the European Economic and Social Committee and the Committee of the Regions - Stepping up the fight against undeclared work
Date: 2007-10-24
Institutions: European Commission
Subjects: employment policy, employment statistics, labour market, moonlighting, underground economy

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 24.10.2007 
COM(2007) 628 final 

COMMUNICATION FROM THE COMMISSION TO THE COUNCIL, THE 
EUROPEAN PARLIAMENT, THE EUROPEAN ECONOMIC AND SOCIAL 
COMMITTEE AND THE COMMITTEE OF THE REGIONS 

Stepping up the fight against undeclared work 

EN 

   EN 

 
 
 
  
COMMUNICATION FROM THE COMMISSION TO THE COUNCIL, THE 
EUROPEAN PARLIAMENT, THE EUROPEAN ECONOMIC AND SOCIAL 
COMMITTEE AND THE COMMITTEE OF THE REGIONS 

Stepping up the fight against undeclared work 

1. INTRODUCTION 

Undeclared work is defined as "any paid activities that are lawful as regards their nature but 
not declared to public authorities, taking into account differences in the regulatory system of 
Member States". This definition1 links undeclared work with tax and/or social security fraud 
and covers diverse activities ranging from informal household services to clandestine work by 
illegal residents, but excludes criminal activities. Undeclared work is a complex phenomenon 
influenced  by  a  wide  range  of  economic,  social,  institutional  and  cultural  factors,  but  it  is 
generally  recognised  that  undeclared  work  tends  to  obstruct  growth-oriented  economic, 
budgetary and social policies. 

Both  employers  (and  consumers)  and  employees  (and  self-employed)  may  engage  in 
undeclared work because of the potential gain — compared to the risk of being sanctioned — 
in avoiding taxes and social security contributions, social rights (minimum wage, employment 
protection  legislation,  leave  entitlements)  and  the  cost  of  complying  with  regulation 
(registration requirements, health and safety regulations). To the extent that undeclared work 
competes with and even crowds out activities which comply with regulations, it is the main 
source of social dumping. In the case of undeclared work performed by individuals who are 
receiving benefits compensating their inactivity, there is also a dimension of social fraud. 

Undeclared  work  was  already  analysed  in  the  Commission's  1998  Communication,  which 
presented a review of its causes and impacts, and highlighted a few policy experiences. The 
Communication  prepared  the  ground  for  an  EU-wide  policy  debate  on  undeclared  work, 
which culminated in the adoption of the common policy approach set out in the Employment 
Guidelines  2003-20052.  These  Guidelines  advocated  a  balanced  mix  of  prevention  (notably 
through  well  adapted  tax-benefit  and  administrative  regulations)  and  awareness  raising, 
sanctions  and  law  enforcement.  Such  a  policy  mix  was  further  articulated  in  the  Council 
resolution  of  29  October  2003  on  transforming  undeclared  work  into  regular  employment3, 
which also called for action by the social partners. Furthermore, the Communication was one 
of the elements inspiring the experiment launched in 2000 allowing for the reduction of VAT 
on specified labour intensive services4. 

Against  the  background  of  the  continued  significance  of  the  informal  economy  and  the 
perceived growth in certain sectors (construction) and forms of work, concerns may be raised 

1 
2 
3 
4 

COM 98(219) 
OJ L197 of 5.8.2003 (specific guideline n° 9 on undeclared work). 
OJ C 260/1 of 29.10.2003. 
Directive  1999/85/EC,  OJ  L277,  28.10.1999  allowing  Member  States  to  reduce  VAT  on  specified 
labour  intensive  services,  such  as  renovation  of  private  dwellings,  hairdressing,  window-cleaning, 
domestic care services and small repairs. This experiment was prolonged until 31.12.2010 by Directive 
2006/18/EC, OJ L51, 22.2.2006, p.12. 

EN 

2 

   EN 

 
                                                 
as to the level of sustained political attention given to undeclared work. This Communication 
aims  therefore  to  underline  the  policy  relevance  of  undeclared  work  by  taking  stock  of  the 
actions  undertaken  in  the  Member  States,  and  by  illustrating  the  scope  for  mutual  learning 
about successful practices. The analysis is also supported by new evidence from a harmonised 
survey  developed  in  order  to  shed  more  light  on  the  characteristics  of  and  motives  for 
undeclared work. 

2. POLICY RELEVANCE OF REDUCING UNDECLARED WORK 

The  successful  implementation  of  policies  which  aim  at  transforming  informal  work  into 
formal  forms  of  employment  will  contribute  to  the  achievement  of  the  main  goals  of  the 
renewed Lisbon Strategy for growth and jobs. 

Undeclared work has negative implications which affect all three pillars of the Lisbon strategy 
and  in  particular  the  over-arching  objectives  of  the  European  Employment  Strategy  (full 
employment, quality and productivity at work and social cohesion). From a macroeconomic 
perspective,  it  decreases  tax  revenues  and  undermines  the  financing  of  social  security 
systems.  From  a  microeconomic  perspective,  undeclared  work  tends  to  distort  fair 
competition  among  firms,  paving  the  way  for  social  dumping.  It  also  causes  productive 
inefficiencies, as informal businesses typically avoid access to formal services and inputs (e.g. 
credit) and prefer to stay small.  

The recent Green Paper on Labour Law5 identified undeclared work as the main contributing 
factor to social dumping and thus as one of the key issues for the modernisation of labour law 
in the EU. Moreover, undeclared work  tends to be  associated  with poor working conditions 
for individuals and subsequent risks to workers' health, low prospects for career progress and 
insufficient  social  protection  coverage.  In  this  context,  EU  social  partners  have  envisaged  a 
joint  analysis  of  undeclared  work  in  the  framework  of  their  2006–2008  work  programme6. 
the  Green  Paper7  revealed  strong  support  from 
The  subsequent  consultation  on 
administrations for increased administrative cooperation at EU level and for wider exchange 
of  information  and  good  practice,  whereas  social  partners  and  other  stakeholders  confirmed 
the  policy  priorities  laid  down  in  the  2003  Council  resolution.  Notably  the  trade  unions 
favoured  a  better  legal  framework  and  enforcement  at  European  level,  in  order  to  combat 
cross-border social fraud. 

There  is  growing  consensus  on  the  cost  of  undeclared  work  to  social  security  systems:  not 
only  is  their  financial  basis  weakened  by  the  loss  of  revenue,  but  also  public  trust  and 
credibility in these systems is undermined. Indeed, undeclared workers can often be entitled to 
unemployment,  inactivity,  or  family  benefit,  but  at  the  same  time  forego  all  the  benefits  of 
working with a formal contract, such as earnings-related pensions, training, the perspective of 
progressing  in  pay  and  status,  and  risk  being  persistently  employed  only  in  undeclared 
activities. Reforms of social protection systems can provide strong incentives to declare work, 
as highlighted in the 2006 Synthesis report on Adequate and Sustainable pensions8. 

5 

6 
7 

8 

Modernising labour law to meet the challenges of the 21st century, COM (2006) 708 of 22nd November 
2006. 
Work Programme of the European Social Partners 2006 – 2008. 
Outcome of the Public Consultation on the Commission's Green Paper "Modernising labour law to meet 
the challenges of the 21st century" (COM(2007)xxx). 
SEC(2006)304.2 

EN 

3 

   EN 

 
                                                 
The  problem  of  a  segmented  labour  market,  where  large  groups  of  workers  are  trapped  in 
activities  with  inadequate  protection,  is  also  increasingly  recognised.  Undeclared  work 
represents an extreme case of labour market segmentation9.  

The  possibility  of  finding  undeclared  work  is  a  key  pull  factor  encouraging  illegal 
immigration.  For  illegal  residents,  who  tend  to  fall  outside  the  social  security  system, 
undeclared  work  is  often  offered  under  conditions  which  are  socially  unacceptable  and  in 
breach  of  health  and  safety  regulations.  On  16  May  2007  the  Commission  proposed  a 
directive  providing  for  sanctions  against  employers  of  illegally  staying  third-country 
nationals10. 

3. EVIDENCE ON UNDECLARED WORK 

A. Drivers of undeclared work 

There is concern over a growing scope for undeclared work in view of the following factors: 

•  the  growing  demand  for  household  and  care  services  as  a  result  of  socio-
demographic changes, possibly in combination with working time reduction; 

•  the  trend  towards  smaller  and  less  hierarchical  working  relationships  with  more 

flexible pay systems or time accounting; 

•  self-employment (including false self-employment) and sub-contracting and, more 
generally,  flexible  contracts  and  on-call  work,  when  they  are  misused  for  non-
declaration of part of the revenue;  

•  the  growing  ease  of  setting  up  cross-border  groupings  of  enterprises,  which 
require  efficient  international  cooperation  between  monitoring  and  enforcement 
bodies and/or systems. 

B. Statistical evidence at EU level 

Measurement problems 

The fact that undeclared work is not observed or registered, and it may be defined differently 
in national legislation, makes it difficult to obtain reliable estimates of how widespread it is 
across  Member  States.  But  assessing  the  extent  and  features  of  undeclared  work  is 
indispensable in order to put in place appropriate policy measures. 

Undeclared work can be measured both directly and indirectly. Indirect methods are based on 
the  comparison  of  macroeconomic  aggregates  (such  as  national  accounts,  electricity 
consumption, cash transactions). Indirect (especially monetary) methods often over-estimate 
the  level  of  undeclared  work  and  say  little  about  its  socio-economic  characteristics.  Direct 
methods,  on  the  contrary,  are  based  on  statistical  surveys  and  have  advantages  in  terms  of 
comparability and detail, but tend to under-report the extent of undeclared work. A thorough 
understanding  of  the  extent  of  undeclared  work  and  its  causes  therefore  requires  combining 

9 
10 

"Towards common principles of flexicurity", COM(2007)359 of 27.6.2007. 
See COM(2007)249 of 16.05.2007. 

EN 

4 

   EN 

 
                                                 
both  methods.  Moreover,  there  is  a  wealth  of  administrative  information,  which  is  not 
systematically exploited and could be used to  complement  findings  from direct and  indirect 
analyses (e.g. statistics from inspections). 

National estimates 

The  best  available  estimates  so  far,  based  on  indirect  methods,  of  the  overall  level  of 
undeclared  work  in  the  Member  States  were  collected  through  a  study  carried  out  for  the 
Commission in 200411. The extent and characteristics of undeclared work appeared to differ 
widely  in  the  Member  States,  with  highs  of  20%  of  GDP  or  more  in  some  southern  and 
eastern  European  countries.  A  recent  stocktaking  by  experts  of  the  European  Employment 
Observatory  network12  indicates  that  undeclared  work  is  still  on  the  rise  in  several  Member 
States13, whilst in a number of new Member States strong job creation in recent years and the 
emergence of labour market shortages, has led to a decline of the phenomenon.  

C. Characteristics and forms of undeclared work according to Eurobarometer 

Further  to  the  2004  study,  in  the  second  quarter  2007  a  survey  on  undeclared  work  using 
direct methods, was carried out in the EU27 as a special Eurobarometer survey (N° 284). It 
focused on public opinions on undeclared work, the demand and supply side, the reasons for 
engaging  in  undeclared  work,  and  the  socio-economic  characteristics  of  producers  and 
consumers. 

In view of the sensitivity of the subject, the pilot nature of the survey, and the low number of 
respondents  who  report  involvement  in  undeclared  work,  results  should  be  interpreted  with 
great care. In particular, the quantitative results are likely to provide only a lower bound of the 
actual  values.  As  the  Eurobarometer  survey  is  based  on  an  established  sample,  it  could  not 
provide  reliable  evidence  on  the  situation  of  illegally  staying  third-country  nationals  or 
citizens  from  the  new  Member  States  facing  temporary  restrictions  on  free  movement. 
However, results indicate for example: 

•  the existence of a large market for undeclared work throughout the EU, especially 

in household services; 

•  that avoidance of taxes and administrative burdens (notably in the case of atypical 

work, e.g. seasonal activities) are the main drivers, less so necessity; 

•  the importance of envelope wages14, especially in the construction sector; 

•  the prevalence among students, self employed and unemployed; 

•  the low awareness of sanctions in case of detection. 

11 

12 
13 

14 

EN 

in 

Work 

"Undeclared 
Union"; 
http://ec.europa.eu/employment_social/incentive_measures/activities_en.htm. 
www.eu-employment-observatory.net. 
Abstraction is made of the effects of recent regularization campaigns of illegally staying third-country 
nationals in IT, ES and PT. 
I.e. the share of total wages which is paid cash-in-hand and undeclared. 

Enlarged 

2004, 

May 

an 

5 

   EN 

 
                                                 
4. POLICIES TO REDUCE UNDECLARED WORK 

In view of the complexity and heterogeneity of undeclared work, there is no simple solution 
to  combating  it.  A  balanced  policy  approach  consisting  of  measures  to  curb  or  prevent  its 
occurrence and their enforcement, involving the social partners, is needed. Such an approach 
was  set  out  in  the  2003  Council  resolution  on  transforming  undeclared  work  into  regular 
employment, which called for 

•  reducing  the  financial  attractiveness  of  undeclared  work  stemming  from  the 
design of tax and benefit systems, and the permissiveness of the social protection 
system with regard to the performing of undeclared work; 

•  administrative  reform  and  simplification,  with  a  view  to  reducing  the  cost  of 

compliance with regulations; 

•  strengthening the surveillance and sanction mechanisms, with the involvement of 

labour inspectorates, tax offices and social partners; 

•  trans-national cooperation between Member States, and 

•  awareness raising activities. 

The  main  policy  developments,  in  the  areas  mentioned  above,  are  discussed  below  and  are 
illustrated with examples of innovative practices15 introduced in the Member States. 

A. Financial attractiveness of undeclared work 

The  available  evidence  confirms  that  the  perceived  level,  design  and  implementation  of 
different  kinds  of  taxation  (notably  labour  income  tax  and  social  security  contributions)  are 
important drivers of undeclared work. However, other factors also play a role, including, for 
example, people's confidence in fiscal and social protection systems.  

In this respect, most Member States have improved the financial incentives for regular work, 
notably by increasing the tax-free base for labour income and through appropriate setting of 
minimum  wages,  either  through  legislation  or  collective  agreements.  Statistics  confirm  the 
general  but  slow  reduction  of  the  tax  burden  on  low  paid  labour.  In  the  EU,  the  total  tax 
wedge  on  labour  decreased  by  around  1.2  percentage  points  on  average  between  2000  and 
200516. However, with the average gross level staying around 40%, these reductions may still 
be  unconvincing  when  given  the  option  of  undeclared  work  (notably  in  combination  with 
benefits).  Moreover,  the  effect  of  these  reductions  may  be  negated  in  the  case  of  overtime 
work, which is subject to significantly higher taxation in many Member States. 

Significant increases in minimum wages have been introduced, especially in the new Member 
States. These were usually set in a cautious way (at less than half of the average wage) so as 

15 

16 

The examples do not reflect an order of preference, nor are the country references exhaustive. A more 
extensive  list  of  innovative  practices  is  presented  at  the  European  Employment  Observatory  website 
(www.eu-employment-observatory.net)  and  in  the  documentation  presented  at  an  international 
in  Brussels  on  21-22  June  2007 
conference  on  undeclared  work  and 
(http://socialsecurity.fgov.be/european_congress/). 
See Eurostat, Structural Indicators, tax wedge on low wage earners. 

tax  evasion,  held 

EN 

6 

   EN 

 
                                                 
to  avoid  the  destruction  of  regular  jobs  and  substitution  by  undeclared  work.  Moreover,  in 
many  new  Member  States  where  the  practice  of  envelope  wages  is  widespread,  higher 
minimum wages reduce the margin for negotiating such “envelopes”. 

Work-related  and  minimum  welfare  benefits  should  be  set  in  a  way  to  allow  decent  living 
conditions,  while  keeping  regular  work  financially  more  attractive  than  undeclared  work  in 
combination with benefits. Stricter controls of benefit recipients have been introduced in most 
Member States. 

The important share of self-employment in some Member States points to possible distortions 
between the tax and social security regimes for employees and the self-employed, stemming 
from lower corporate tax rates compared to labour income taxation and different treatment of 
self-employed and employees in the social security systems. The introduction of a single flat 
tax rate in SK and EE could be seen as an attempt to remove such distortions. 

Some policy lessons:  

•  from  the  perspective  of  undeclared  work  the  balance  of  incentives  and 
disincentives  in  social  security  systems  can  be  improved  by  ensuring  adequate 
levels of income support, recognition of the link between rights and contributions, 
by controls on welfare beneficiaries and adequate financial sanctions for tax and 
social security fraud; 

•  points to watch include (i) the taxation of overtime, (ii) the respect of minimum 
wages  or  wages  set  by  collective  agreements  and  their  possible  role  as  levels  of 
reference for envelope wages, (iii) tax distortions between the status of employee 
and self-employed, and (iv) the reduction of taxation on low productivity jobs. 

B. Administrative reform and simplification 

Together  with  labour  taxation,  the  administrative  burden,  notably  for  atypical  and  seasonal 
work,  appears  to  be  the  strongest  driver  of  undeclared  work.  In  some  extreme  cases,  the 
combination  of  low  productivity  with  administrative  and/or  tax  burdens  renders  certain 
activities not economically viable in the formal economy. 

Simplified systems for the registration of workers were introduced in EL (for family workers), 
FR (seasonal workers in agriculture, hotels and restaurants), NL (for house cleaning) and DE 
("mini-jobs")  with  considerable  job  creation.  In  ES,  where  regional  comparisons  reveal  a 
correlation  between  the  incidence  of  temporary  contracts  and  undeclared  work,  the  Social 
Partner  agreement  concluded  in  2005,  aiming  at  reducing  temporary  employment,  may  be 
regarded as a promising step towards the regularisation of undeclared work as well. 

Service vouchers and facilities to perform regular domestic services were introduced in BE, 
AT,  and  ES,  whereas  they  were  scaled  down  in  DK  in  2001.  Often  there  was  a  significant 
positive impact on job creation, but the results in budgetary terms are mixed. 

To  the  extent  that  undeclared  work  may  occur  in  conjunction  with  the  evasion  of  indirect 
taxes, some Member States have taken up the possibility offered by Directive 1999/85/EC to 
reduce  VAT  on  specified  labour  intensive  services.  There  is  limited  evidence  of  the 
employment  creating  effect  of  a  single  reduction  of  VAT.  For  building  renovation  and 
maintenance, several Member States (e.g. FI, SE, IT) opted for a deduction from the tax base 
of the consumer as a more effective instrument. 

EN 

7 

   EN 

 
Upon accession of 10 new Member States on 1 May 2004, the UK, IE and SE opened their 
labour  markets  for  workers  from  these  new  Member  States,  whereas  others  applied 
transitional arrangements to workers from 8 of them.  

In  its  report  on  the  functioning  of  transitional  arrangements  set  out  in  the  2003  Accession 
Treaty, the Commission stated that restrictions on labour market access may exacerbate resort 
to undeclared work.17  

Since 1 May 2006, other EU-15 Member States (FI, ES, PT, EL, IT, NL and soon LU) have 
fully  lifted  their  restrictions,  while  others  have  simplified  theirs,  in  a  context  of  tightening 
labour  markets.  Recently,  DE  and  AT  have  announced  liberalising  access  for  skilled 
specialists. On 1 January 2007, ten EU-25 Member States (CZ, EE, CY, LV, LT, PL, SI, SK, 
FI  and  SE)  have  liberalised  access  of  Bulgarian  and  Romanian  workers  to  their  labour 
markets under national law.  

Some policy lessons: 

•  there is scope for further improvement of labour law and administrative systems 
in order to better cope with short-term needs and shortages in the labour market; 

•  there  is  wide  scope  for  sector-specific  approaches  to  transform  undeclared  work 
into  regular  work  (especially  in  hotels  and  restaurants,  agriculture,  home 
services); 

•  the  Community  acquis  on  the  free  movement  of  workers  should  be  generally 

enforced and facilitated (notably through EURES); 

•  the possibilities of e-government, on-line registration and exchange of information 

between administrative databases should be further exploited. 

C. Surveillance and sanctions 

The  Commission's  Green  Paper  on  Labour  Law18  highlighted  a  need  for  more  effective 
cooperation  at  national  level  between  different  government  agencies,  such  as  labour 
inspectorates,  social  security  and  tax  authorities,  and  stated  that  "improvements  in  the 
resources  and  expertise  of  these  law  enforcement  authorities,  and  in  their  cooperation  with 
partners, can contribute to reductions in the incentives to undeclared work". 

New laws and Action Plans aimed at better detecting undeclared work have been enacted in 
several Member States (DE, FI, FR, IT, SK etc.). In many cases, the definition of undeclared 
work  has  been  updated  to  reflect  developments  in  the  labour  market  (agency  work, 
subcontracting etc.) and criteria have been adopted to detect false self-employment. 

The improvement of the monitoring and control capacity of social security organisms, labour 
inspectorates and trade unions has become a priority in many Member States. Inter-ministerial 

17 

18 

COM(2006)48 final of 8.2.2006 concerning the period 1 May 2004-30 April 2006. A further report is 
due before the end of the second phase on 30 April 2009, respectively the end of the first phase on 31 
December 2008 in the case of Bulgaria and Romania. 
COM(2006)708 previously mentioned 

EN 

8 

   EN 

 
                                                 
coordination structures have been set up in FR, BE, IE and IT. Interfaces between the relevant 
databases have been established (e.g. in PT). 

The obligation for employers to register workers from the first day of employment has been 
generalised.  Also  the  potential  users  of  undeclared  work  have  been  made  liable  in  DE 
(obligation  since  2004  for  households  to  keep  invoices  on  construction  and  maintenance 
services) and in AT (obligation of up-to-the minute accounting on a cash basis in the hotels 
and restaurants). 

Social Partner agreements have been concluded in many countries, notably in the construction 
sector  (DE,  FI,  IT).  In  IT,  the  Budget  Law  states  that  in  2007  the  Ministry  of  Labour,  in 
cooperation  with  the  social  partners,  will  introduce  a  normative  system  to  estimate  actual 
numbers of hours worked ("indici di congruità"). 

Sanctions for employers of illegally staying third-country nationals have been introduced (e.g. 
FI,  DE,  NL,  UK),  and,  in  many  cases,  strengthened,  including  through  bans  on  public 
procurement. In this context, the Commission has recently proposed a directive to ensure that 
all  Member  States  introduce  and  enforce  similar  sanctions  against  employers  of  illegally 
staying third-country nationals as part of a comprehensive EU migration policy.19 

Some policy lessons: 

•  Compulsory  registration  of  workers  is  a  pre-requisite  for  detecting  undeclared 
work. Exemptions from the practice of written labour contracts should be limited 
to the minimum; 

•  There is considerable scope for sector-specific solutions to control and regularise 

undeclared work with the involvement of the social partners; 

•  The  success  of  policies  to  combat  undeclared  work  depends  on  the  cooperation 
between the various bodies in charge of tax, labour, and immigration, as well as 
on the enforcement of legislation and sanctions. 

D. Cross-border cooperation within the EU 

Bilateral  cooperation  agreements  have  been  concluded  in  the  context  of  Directive  96/71  on 
the  posting  of  workers  between,  among  others,  FR,  BE  and  DE,  and  a  few  others  are 
envisaged  (between  IT,  ES,  PL  and  CZ).  Moreover,  a  group  of  Member  States  have  set  up 
cooperation  with  a  view  to  promote  and  exchange  expertise  on  a  wider  undeclared  work 
related policy agenda20.  

The Commission has concluded that administrative cooperation among Member States should 
be  improved,  in  particular  in  the  field  of  posted  workers21.  In  this  context,  the  Commission 
plans to adopt a Recommendation aimed at reinforcing such cooperation through the use of 
the  Internal  Market  Information  System,  as  well  as  a  Decision  setting  up  a  high  level 

19 
20 

21 

See COM(2007)249 of 16 May 2007. 
ENUW (European Network on Undeclared Work) established between public partners of five Member 
States (DE, FR, IT, BE and RO) and coordinated by the Italian Ministry of Labour. 
COM(2007) 304 Final of 13th June 2007 on the posting of workers in the framework of the provision of 
services. 

EN 

9 

   EN 

 
                                                 
Committee. This Committee should support and assist the Member States in identifying and 
exchanging  good  practices  as  regards  control  and  enforcement  of  legislation  for  posted 
workers. 

Moreover, the 2006 Commission proposal for a Regulation of the European Parliament and of 
the Council laying down the procedure for implementing Regulation 883/2004 concerning the 
coordination of social security schemes (which will replace Regulation 1408/71 as soon as the 
implementing  regulation  is  adopted)  also  contains  provisions  strengthening  the  cooperation 
between social security institutions of the Member States. 

Policy lesson: 

•  The  institutional  framework  for  controlling  cross-border  movements  of  workers 
needs continuing adaptation to the growing pace and complexity of cross-border 
business. 

E. Awareness 

Several  successful  awareness  campaigns  have  been  conducted  (e.g.  Danish  "fair  play" 
campaign).  In  the  new  Member  States,  they  were  often  on  a  large  scale  and  focused  on 
specific issues like envelope wages (e.g. "Work Contract Works" in LV).  

Policy lessons: 

•  There  is  scope  for  increasing  awareness  among  the  public  on  the  risks  linked  to 
(see 

undeclared  work,  particularly  as 
far  as  sanctions  are  concerned 
Eurobarometer results); social partners have a key role to play in this respect; 

•  It is important to inform citizens about the positive effects of full payment of taxes 

and about the insurance nature of social security contributions. 

5. CONCLUSIONS AND FOLLOW UP 

There are no convincing signs that undeclared work has noticeably decreased in recent years. 
Undeclared work remains a financially attractive option, especially in combination with VAT 
fraud and the possibilities to operate on a wider EU scale. Piecemeal policy actions have been 
taken across Member States, but there is an apparent lack of evaluation of results and pooling 
of  expertise.  It  is  time  for  Member  States  to  step  up  their  efforts  in  the  fight  against 
undeclared work. 

•  Despite some progress (labour taxation for the low paid), more needs to be done, 
taking  into  account  national  circumstances,  in  order  to  further  reduce  labour 
taxation,  by  improving  the  quality  of  public  finances,  notably  the  efficiency  of 
public expenditure and taxation systems, by reducing non-wage labour costs, and 
by shifting the tax burden to alternative sources of revenue22. There is also scope 

22 

See  the  Integrated  Guidelines  N°  2,  3,  5  and  22.  The  Employment  Guidelines  contained  earlier 
references to shifting the tax burden on labour towards indirect or environmental taxation (see e.g. the 
2001  edition).  See  also  the  Green  Paper  on  market-based  instruments  for  environment  and  related 

EN 

10 

   EN 

 
                                                 
for  reducing  the  administrative  complexities  in  tax  and  benefit  systems,  which 
may constitute incentives for undeclared work, notably for the self-employed and 
small companies; 

•  The Commission considers the transitional arrangements limiting the mobility of 
workers  from  the  new  Member  States  as  a  factor  hampering  the  recourse  to 
declared work, hence may exacerbate the practice of undeclared work, while the 
current  labour  market  developments  create  enhanced  opportunities  for  regular 
work.  In  this  context,  the  Commission  calls  on  the  Member  States,  who  are 
responsible for these arrangements, to review them as soon as possible, or in any 
event, at the end of the second phase on 30 April 2009 in the case of EU-8, and at 
the  end  of  the  first  phase  on  31  December  2008  in  the  case  of  Bulgaria  and 
Romania; 

•  Member States are invited to give due attention to undeclared work when deciding 
on the pathways they intend to follow in implementing the common principles of 
flexicurity. 

•  The Commission calls on the social partners to agree on concrete initiatives in the 
field  of  undeclared  work  in  the  context  of  their  joint  work  programmes,  at  the 
European cross-industry, sectoral and national levels; 

•  Effective  surveillance  and  enforcement  are 

important  components  of  a 
comprehensive  policy  approach.  In  this  context  the  Commission  recalls  its 
legislative  proposal  on  sanctions  for  employers  of  illegally  staying  third-country 
nationals.  

•  The  Commission  will  investigate  the  feasibility  of  establishing  a  European 
platform  for  cooperation  between  labour  inspectorates,  and  other  relevant 
monitoring and enforcement bodies. 

•  To  enable  the  monitoring  of  progress  in  transforming  undeclared  work  into 
regular  work,  Member  States  should  explore  with  the  Commission  the  most 
suitable  methodology  for  quantifying  the  existence  of  undeclared  work.  A  study 
will be undertaken to this end under the PROGRESS programme in 2008.  

•  The  Commission  will treat  undeclared  work as a priority in its Mutual Learning 
programme.  Stakeholders  will  have  the  opportunity,  under  the  PROGRESS 
programme,  to  submit  proposals  for  information  campaigns,  survey  and 
evaluation activities, and initiatives to exchange information on good practices. 

policy  purposes,  COM(2007)140  of  28.3.2007,  and  the  Communication  "European  Values  in  the 
Globalised World", COM(2005)525 of 03.11.2005. 

EN 

11 

   EN