New tax rules against undeclared work, Denmark
New rules against undeclared work became effective on 1 July 2012. From 1 July, all services amounting to €1,345 (DKK 10,000) and more must be paid digitally. Furthermore, the Ministry of Taxation will be able to inspect private property if outdoor work of a professional nature is being done and all service providers will be asked to show ID. From 2013 it will also be obligatory to have visible signs and logos on the construction site and on company cars. On the other hand, light domestic work for young people under 16 years of age, as well as helping out friends and neighbours, will be tax free, and pensioners are allowed to earn up to DKK 10,000 a year through domestic work without paying tax.
The measure was passed as a bill in the Parliament by the new centre-left government led by the Social Democrats, who took office after the general election on 15 September 2011. The explicit political driver behind this bill is to combat undeclared work by narrowing the scope of possibilities.
The objectives are to prevent and anticipate undeclared work in homes and houses through the inspection and control of special service providers, and through this measure to raise awareness about the illegality of undeclared work, even in small economic areas, by sharing the responsibility and penalty of undeclared work between the person ordering and the person providing the service.
Furthermore, this measure seeks to narrow the possibilities of a more or less institutionalised black economy within domestic work and larger maintenance services of houses and homes.
In general, the measures are a mixture of strengthened monitoring and new, small, tax-free services.
Measures to be implemented in 2012:
- Provided services that amount to DKK 10,000 and more must be paid digitally, for example, via credit card, post office, bank or online banking. Otherwise the costumer will be jointly responsible and receive a penalty if the service provider, e.g. a tradesman, has not declared tax and VAT. The rule also concerns business–to-business trades.
- The Ministry of Taxation (TAX) has the right to inspect visible outdoor housework of a professional nature. The contractor/provider must be able show legal identification to the authorities. TAX may not enter the house and the control only concerns the company providing the service, not the house owner. Workers are obliged to disclose their social security number and valid identification to TAX.
Measures to be implemented in 2013:
- Young people under 16 years of age may do domestic work or childcare without paying tax. However, the payment is only tax free if it is made for private people and not for companies.
- Pensioners may earn up to DKK 10,000 annually by working in private homes. It does not matter if the pensioner receives a state pension as long as the people in question fulfil the age obligation for being a pensioner.
- Construction sites must be provided with an obligatory, comprehensive posting of signs so that it is clear which companies are working at the site.
- Company cars and vans (up to 4 tons) must be equipped with the company’s name or logo and company registration number. Foreign vans must carry visible proof in the windshield of their registration in the RUT register (all foreign companies that work in Denmark must be registered in the RUT register).
- Helping out family members and neighbours (vennetjenester) in private homes is tax free. This does not include building a house.
The state authorities and the Parliament. Managing the rules is in the hands of TAX and the police are responsible for the enforcement of the rules. The trade unions and SMEs will both act as whistleblowers. The labour inspection authorities (Arbejdsmarkedssyrelsen) will also benefit from the new rules, in so far as it will be easier to control illegal workers and companies.
Outcome of evaluations; lessons and conclusions
It is too early to evaluate the outcomes of the enhanced tax rules against undeclared work. The measure was implemented on 1 July 2012. However, at the time of writing (August 2012), the predictions from the social partners are positive. Besides, obstacles and problems for a successful implementation of the measure seem to be absent.
The political insistence behind the measure – that even small-scale undeclared work is not OK – could encourage a less laissez-faire attitude among the Danes and lead to more awareness of the negative sides of ‘a little moonlighting’.
So far there are no estimations on the number of workers and companies that will be involved as a consequence of the new tax rules. The measure could, however, have an impact on the number of foreign workers and entrepreneurs in Denmark, in particular in building and construction. TAX’s new enhanced tools will make it more difficult for foreign companies to do undeclared work in Denmark and the tax deduction could also inspire house owners ‘to go local’ instead of looking for a foreign company because they are cheaper.
Overall, the bill is estimated to result in additional revenue, but it cannot be quantified in detail.
In the comments on the bill, the tax minister estimates that the proposed initiatives to legalise certain forms of undeclared work will result in an immediate loss of approximately DKK 50 million annually. Concerning the elements for greater effort and control of undeclared work, it is estimated that these proposals will provide an additional revenue of at least the same amount.
The estimates are subject to considerable uncertainty, as there is no statistical data that can form the basis of a best estimate of the revenue implications of the proposal.
The most costly change is estimated to be the legalising of pensioners to earn up to DKK 10,000 tax free a year. However, this could be balanced by the tax revenue that the enhanced control options will bring in.
The administrative and economic costs for the trades are estimated to be low and mainly concentrated on the arrangements of signs and logos.
The measure is national and passed in the Parliament. It is easy to implement and the administrative costs for the authorities, the citizens and the trades are small. In addition, the labour inspection authority in the country will benefit from the increased control measures. There is great potential for other Member States, but it goes without saying that this measure is basically a political initiative and is therefore dependant on the political practice concerning this issue in other Member States.
Lov om ændring af ligningsloven og forskellige andre love, https://www.retsinformation.dk/Forms/R0710.aspx?id=141378.
Carsten Jørgensen, FAOS, University of Copenhagen