The Tax and Customs Board (MTA) finds that to contain tax fraud associated with agency labor, Estonia should review legislation, including immigration policy. Placing all bets on supervision is expensive and unnecessary.
Minister of Finance Martin Helme (EKRE) sent a letter to the Tax and Customs Board in early October, asking the agency to check all Ukrainian agency workers in Estonia. The minister is troubled by a scheme using which some entrepreneurs avoid paying taxes and agency workers the required average salary.
"For example, when an employee is seemingly on an assignment to Estonia while officially registered as working for a Polish company, without actually spending a day in the country. They come straight to Estonia and work for a local company. All documentation reads the worker is on assignment to Estonia," described Oscar Õun from the tax board's tax audit division.
What is more, the mediating company registered in Poland often has Estonian owners. Martin Helme wants the MTA to pledge considerable resources to checking agency labor and send the ministry monthly reports. Õun said that while the board is constantly monitoring agency labor, it does not have idle agents.
"We could change task allocation, while those new tasks would still come at the expense of something. Supervision mainly concentrates on payment under the table today to bring the state those €87 million. If we decided to concentrate more on foreign labor instead, other tasks would inevitably suffer."
Agency labor schemes are bordering on legal, while violations are difficult for the MTA to prove. It is easier when Polish colleagues tell Estonia the agency isn't paying taxes in Poland either.
"Workers registered in Poland are often paid a little something there too, giving them social guarantees."
And if a person is paid in Poland, how would one prove their employment relationship is actually fictitious? Labor mediators also work elsewhere in Europe. This means the tax board needs to be able to navigate legislation and tax systems of different countries. It is also difficult to interview workers who leave Estonia in the middle of proceedings.
"We can ask our Polish colleagues for help, we can try to chase people ourselves, but it is very difficult to come across watertight proof in these situations," Õun explained.
Õun said the Tax and Customs Board operates at capacity, while addressing individual cases is expensive and complicated, meaning that the state might not benefit from zealous supervision.
"There will be new companies. If we discover a group behind these schemes, we can start unraveling it, while it's not out of the question they'll find new people who believe it sensible to do business this way after a few months."
The Tax and Customs Board believes it would be more effective to address the reasons entrepreneurs cheat. Moving forward with the finance ministry's bill to introduce income tax liability for all agency labor in Estonia from the first day of work is one thing to consider. Oscar Õun added that Estonia's immigration policy should also be revisited.
"Companies are still talking about labor shortage. Perhaps we should make working in Estonia legally easier. Talking about the Foreigners' Act's salary criterion, we could ask whether it is serving its purpose today. Perhaps it would make sense to extend the short-time work period from the current 365 days to two years. We should think about legislation so as not to saddle supervision with all of the responsibility."
Equality Commissioner Liisa-Ly Pakosta also asked to see Martin Helme's letter dedicated to Ukrainian workers. She will make sure there is no discrimination. Oscar Õun said the tax board does not organize its work based on nationality.
"Based on the cases I have seen, Ukrainians are very hardworking. They come to Estonia to work, have high motivation and go home to rest once the work is done. In that sense, we have perhaps been unfair and injurious toward workers from Ukraine."
Editor: Marcus Turovski