New campaign launched against undeclared work

In July 2004, the Danish government launched a new campaign against undeclared work and tax fraud, the second such initiative in the space of a year. It introduces new measures to combat undeclared work, building on the experience of the first campaign, and has been broadly welcomed by the social partners. The Danish Federation of Small and Medium-Sized Enterprises is proposing additional measures, including criminalisation of the users of undeclared work and a lower VAT rate on services.

Over 2003-4, the public labour market and tax authorities, the police, the social partners and to a certain degree the Danish Immigration Service (Udlændingestyrelsen) have been campaigning against undeclared work in shops and restaurants and in construction (DK0406102T and DK0308102F). Workplace visits by the tax authorities have revealed widespread tax fraud and undeclared work.

In early July 2004, the minister responsible for taxation announced that the authorities would launch a new campaign on undeclared work, which was broadly welcomed by the political parties and social partner organisations. New measures in the campaign include the following:

• all employees must be registered with the relevant authorities from their first working day. Tax inspectors are often told that shop employees found not to be registered with the tax and social security authorities are on their first day of work and thus not registered yet.;

• insurance companies must ensure that work carried out to rectify damages for which insurance claims have been made is declared properly;

• Dansk Tipstjeneste, the national football pools, lottery and gambling body, is to terminate its contracts with retailers charged with tax fraud. Dansk Tipstjeneste has contracts with 4,000 retailers, and administering its services is a profitable business for retailers; and

• a nationwide campaign will focus on 'criminalising' undeclared work with the aim of changing the perceived general attitude that 'a little favour now and then doesn’t harm'. Workplaces will be involved in discussions on undeclared work.

Social partner organisations have welcomed the new initiatives, including the Danish Federation of Small and Medium-Sized Enterprises (Håndværksrådet, HVR), which represents enterprises mainly in building, construction, services and small industry. HVR states that customers that avoid paying the full price for services should also be criminalised. The member enterprises of HVR are often asked to work 'without a bill'- in most cases meaning without charging VAT. HRV also calls for large-scale initiatives to change attitudes towards undeclared work. Undeclared work represents a substantial parallel economy damaging the competitiveness of small enterprises and resulting in increased taxation on them, HVR claims. In this connection, HVR proposes a lower VAT rate on services and a lower minimum turnover above which firms must register for VAT. Both trade unions and employers' organisations have raised the possibility of excluding members that carry out undeclared work.

Undeclared work has been relatively widespread in Denmark since the introduction of income tax at the beginning of the 20th century. Initially, this was mainly in building sector, but undeclared work later spread to restaurants and shops, and was in many cases combined with other forms of tax fraud. At the end of the 20th century the annual shortfall in state tax revenues due to undeclared work was estimated to be DKK 25 billion (EUR 3.3 billion), though the extent of undeclared work was thought to be declining. In recent decades, the phenomenon has been particularly widespread in shops, kiosks and restaurants, many of which are owned by people with a non-Danish ethnic background.