Customer Liability and Fraud Prevention Acts, Austria
A variety of measures have been implemented in recent years in order to tackle social fraud practices in Austria, which have especially (but not exclusively) occurred in the construction sector. Two laws have recently been passed that make the subcontracting of ‘bogus’ companies more difficult. The 2009 Customer Liability Act targets construction companies subcontracting work to other companies. The 2011 Fraud Prevention Act aims to remove the unfair competitive advantage of some market players over others.
Illegal employment practices and widespread instances of social fraud have been a problem in Austria for several years now, especially with regard to the establishment of ‘bogus companies’, mostly in the construction sector. These are companies without assets (i.e. letter-box companies) that only serve the purpose of registering employees with social security institutions without any intention of paying any taxes or social security contributions. Those companies usually do not have their own business premises, but reside in empty basements or storage rooms. The registration of the company is usually done by ‘straw men’, often with false identities. These bogus firms operate in the following manner: companies are founded, employees are registered and after several weeks or months, when the contract has been finished, the starting capital has disappeared and the managers have resigned, the company declares bankruptcy. Taxes and social security contributions thus remain unpaid. The objective of this practice is social fraud. This form of organised fraud causes damage of up to €1 billion annually, according to a recent study commissioned by the Federal Ministry of Labour, Social Affairs and Consumer Protection (BMASK). According to estimates by the finance police, some 800 construction companies are established each year, of which 600 are not operating any more in the following year. Of course, this does not suggest that all 600 are bogus companies, but it can be estimated that a good share of them are engaged in illegal practices.
A variety of policy measures have been implemented over the course of the last few years (see Adam, 2011) in order to reduce the share of the shadow economy in Austria and to tackle social fraud. As mentioned above, the most widespread form of social fraud occurs via the establishment of so-called ‘bogus firms’. Thus, two laws have recently been implemented in order to impede their establishment. Furthermore, an online database of construction sites was established, facilitating checks and controls by authorities.
The Customer Liability Act (AuftraggeberInnen-Haftungsgesetz) stipulates that construction companies that are subcontracting work to other companies are liable for the fulfilment of the subcontractors’ social insurance contribution obligations. It was hoped that this way, bogus companies would not be considered as subcontractors anymore. The law was enforced on 1 September 2009. On 1 January 2011, the customer liability was extended to companies engaged in the cleaning of objects (buildings), or rather, the subcontracting of cleaning work. The customer is liable for all contributions and levies that the subcontracting company is to pay to the Austrian health insurance providers in the range of 20% of the provided wages at the maximum.
In the framework of the Fraud Prevention Act 2010 (Betrugsbekämpfungsgesetz, BBKG), customers’ liability was extended to wage-dependent levies. This means that if building work is being subcontracted to another company, the customer is liable for all wage-dependent levies that the subcontracted company is to pay, up to a maximum of 5% of the rendered wages. This came into place on 1 July 2011. The BBKG includes regulations that are to remove unfair competitive advantage and which should create the same conditions for all market participants. In the framework of the BBKG, it was clarified that the net wage is to be treated as agreed upon when the registration requirement has not been fulfilled and the tax on wages has not been retained as according to regulations and has not been paid. This means that the wages that had been paid for the duration of the illegal employment are to be considered net wages, of which the gross wages are to be calculated.
In addition to these two laws, which have been implemented, a so-called ‘construction site database’ was established on 1 April 2012. This web-based tool is for employers and clients and simplifies the registration obligation for construction sites and the advance notification thereof. With this electronic registration, obligations towards the labour inspection (Arbeitsinspektion), the Labour Inspectorate for Transport (VAI) and the Construction Workers’ Annual Leave and Severance Pay Fund (BUAK) are fulfilled automatically. With the installation of this database, an overview on new construction sites is given. Besides the above-mentioned authorities, the finance police and the health insurance providers also have access to the data. Thus, targeted and planned checks and controls can be carried out.
A variety of actors are involved in tackling social fraud, in implementing laws and in doing controls and checks. Several ministries are involved: the Federal Ministry of Finance (BMF), the Federal Ministry of Labour, Social Affairs and Consumer Protection (BMASK), the Federal Ministry of Health (BMG), the Federal Ministry of Interior Affairs (BMI) and the Federal Ministry of Justice (BMJ). In addition, social insurance institutions like the BUAK and WGKK are involved, as are the social partners.
Outcome of evaluations; lessons and conclusions
Achievement of objectives
In a recent study (June 2012) conducted by the University of Vienna for BMASK (see above), recommendations were provided in order to increase the efficiency of combating social fraud in Austria. The study was commissioned because even though the above-mentioned laws had been implemented, the decrease of social fraud is not considered to be sufficient enough by public authorities.
Obstacles and problems
The most important obstacle identified by the authors of the study (which is not publicly available as of now) is the lack of coordination among the concerned authorities. A major problem in tackling social fraud is the question of who is to be considered the legal employer of the people who are registered with the bogus company with regards to issues of liability.
The above-mentioned study recommends that automatically processing software is to be developed in order to be able to detect bogus companies and implement checks and controls at an early stage. Furthermore, specific offences of social fraud are to be elaborated so that the regulations against social fraud can be implemented more efficiently, including the conviction of offenders.
As mentioned above, estimates show that about 800 companies are established in the construction industry annually, of which about 600 are not operating in the following year, of which a certain share (no estimates available) are thought to be bogus companies. No estimates are available as to the number of employees concerned.
The implementation of an online database for the establishment of construction sites is easily transferable to other Member States. The transferability of the two laws implemented might be a bit more difficult due to different national legal traditions.
AK (Chamber of Labour): www.arbeiterkammer.at
ÖGB (Austrian Federation of Trade Unions): www.oegb.at
WKO (Federal Economic Chamber): www.wko.at
IV (Federation of Austrian Industry): www.iv-net.at
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Bernadette Allinger, FORBA (Working Life Research Centre)