Targeted control of enterprises for undeclared work, Estonia


Construction and woodworkingHotel restaurant and catering
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In 2012, the Estonian Tax and Customs Board undertook extensive activities to tackle tax fraud and undeclared wages, including hiring an additional 90 tax officials. The activities include notification letters as well as visits to company sites. In 2012, the tax officials concentrated on the construction and hotel and catering (restaurants) sectors.



According to the Estonian Institute of Economic Research (Eesti Konjuktuuriinstituut, EKI), in 2011, 8% of Estonian employees received salaries that remained at least partly undeclared and so the necessary taxes were not paid. It was estimated based on the research that this translates into €100.34 million in lost tax income in 2011 (Estonian Institute of Economic Research, 2012). These estimates are based on the assumption that each person receiving undeclared salaries was paid an average wage. In order to reduce the lost tax income, the government has taken different measures to achieve increased tax payment and improve tax behaviour among companies.


One of the objectives of the Tax and Customs Board is to prevent the infringement of tax laws and increase law-abiding behaviour among taxpayers. Thus, instead of burdening employers with tax audits and offence procedures at the first instance, they are given the opportunity to revise their business activities and change them in accordance with the law (Tax and Customs Board, 2011).

Specific measures

On 24 November 2011, the Tax and Customs Board announced that they had started sending out notification letters to 1,300 companies, in which the companies are asked to revise their accounting and tax-related information and give feedback to the tax authority on the results of their business activities.

In addition, 1,000 letters were sent out to people whose average wages in the company were considerably lower compared to the average of the region and economic sector. This could be an indication of undeclared payments to workers. An additional 300 letters were sent to companies where a risk assessment undertaken by the Tax and Customs Board showed a risk of hiding turnover or the use of fictitious invoices. According to the Tax and Customs Board, an estimated €30.2 million in tax income remains unpaid in these 1,300 companies (Tax and Customs Board, 2011).

The notification letters give companies time to improve their tax behaviour. In companies that do not improve their tax behaviour or cannot give satisfactory reasons for the results of their business activities, a control of tax payments and accounting is initiated. For instance, as a result of this specific wave of notification letters, additional control was initiated in 500 companies in February 2012 (EPL, 2012).

The Tax and Customs Board also visited company sites to inspect business activities and the actual number of employees working on sites. For instance, in March and April 2012, tax officials visited 150 accommodation and catering companies to find out the reasons for the differences in their economic indicators compared to the average. The officials concentrated specifically on companies where the declared wages were considerably below the average wages in the region. In companies that do not change their tax behaviour after the inspections, the Tax and Customs Board will undertake additional controls until taxes are declared according to the law. In May and June 2012, additional controls had been initiated in 20 accommodation and catering companies.

The main measures of control on sites include interviews with the members of the management board and employees, checking documentation, observing business activities and controls in real time (i.e. tax officers are continuously present at the business location and monitor the cash movements and activities of employees in real time). The selection of the exact measure in each company and the time of its implementation depend on the specific risk type of the company and how ready the company is to cooperate with the tax officials (Äripäev, 2012).

Another example has been the control of construction companies. In March and April 2012, tax officials initiated the control of 278 construction companies, including 132 unannounced visits to companies. The officials interviewed a total of 1,600 employees, of whom around one-quarter claimed to be working for the first day. According to the assessment of the Tax and Customs Board, around €40 million of taxes remain unpaid in the construction sector each year. The biggest problems are undeclared wages and value added tax (VAT) frauds (Estonian Employers’ Confederation, 2012).

Actors involved

The controls are undertaken by the Estonian Tax and Customs Board.

Outcome of evaluations: lessons and conclusions

Achievement of objectives

As a result of the control visits and notification letters, a number of companies improved their tax behaviour. The total number of declared employees increased and the wage levels of employees were increased, indicating that the share of undeclared wages in these companies decreased (see also ‘Impact indicators’ below). However, there are still a number of companies that did not change their tax behaviour and which will be further controlled.

Obstacles and problems

The activities described above require a large labour force: the Tax and Customs Board hired 90 additional tax officials at the end of 2011. It has been pointed out that before hiring additional employees, the Tax and Customs Board did not have enough employees to deal with all the high-risk companies and around one-fifth of high-risk companies remained untouched. The additional workforce is expected to bring an additional €11 million in tax income in 2012 and €20 million per year after that (EPL, 2012).

Hiring additional employees is part of the Tax and Customs Board’s four-year plan. At the end of the project deadline, the results of the additional workforce are revised and it will be decided whether the additional employees will still be necessary (, 2012).

Lessons learned

Even though many companies improved their tax declarations as a result of the initiatives described above, there is still much work to be done in improving tax behaviour. The Tax and Customs Board is looking for additional opportunities to tackle undeclared wages. For instance, changes in legislation are discussed with different partners (, 2012). The most problematic sectors are construction, forestry, catering (restaurants) and also commerce.

Impact indicators

The companies that received notification letters in November 2011 were requested to revise their declarations for December and the tax officials started to control for the results in January 2012. Almost 800 companies of the total 1,300 reacted to the notification letters and changed their declarations accordingly, while additional controls will be implemented in other companies (EPL, 2012).

As a result of the site visits, 22 catering and 25 accommodation companies improved their tax behaviour. Before the controls, the average declared salary in the catering companies was €277 and €308 in the accommodation companies. After the control visits, the average declared salary increased to €325 (by 17.3%) in catering and €348 (by 13%) in accommodation companies. The number of employees was increased in 13 catering companies (by a total of 35 employees) and in six accommodation companies (by a total of eight employees). However, 69 companies did not make any significant changes in their tax behaviour or did not present their tax declarations on time. (, 2012).

In the construction sector, 125 companies improved their tax behaviour. Before the control visits, the average declared salary was €388, which increased to €532 after the controls (by 37.1%). Also, the number of declared employees was increased in 52 companies (by a total of 166 employees). However, 79 construction companies did not change their tax behaviour or did not present their tax declarations on time, and in 74 companies, tax declarations actually decreased. As a result of the control activities, tax officials have identified undeclared and unpaid taxes of €780,000 (Estonian Employers’ Confederation, 2012).


The measures would be easily adaptable in different sectors of the economy as well as different Member States. However, one consideration is the labour intensiveness of such controls and thus the extensive workforce required from the tax official.


Estonian Tax and Customs Board:


The Tax and Customs Board has organised such initiatives before, although the details and focus of activities have been different (see also an example from 2008). For instance, tax officials have previously concentrated on taxi services, large supermarkets and entertainment facilities.


Äripäev (2012), Maksuameti kontrollid tõstsid palka ja suurendasid töötajate arvu [The controls of Tax and Customs Board raised salaries and the number of employees], 21 June, available at (2012), ‘Maksuameti kontroll tõi toitlustusfirmadelt lisa maksuraha üle 40 000 euro’ [‘Control of the Tax and Customs Board brought additional tax income from catering companies of more than 40,000 euros’], 26 July, available at

EPL (2012), ‘Maksuamet palkas 90 uut maksuametnikku’ [‘Tax and Customs Board hired 90 new tax officials’], 1 March, available at

Estonian Employers’ Confederation (2012), ‘Kevadkontrollid tõstsid ehitussektori töötajate arvu 166 võrra’ [‘The spring inspections raised the number of employees in the construction sector by 166’], 6 June, available at

Estonian Institute of Economic Research (2012) Varimajandus Eestis 2011 (elanike hinnangute alusel [Undeclared economy in Estonia 2011 based on the assessment of the population], Estonian Institute of Economic Research, Tallinn. (2012), ‘Maksuamet hoogustab kontrolli ümbrikupalkade üle’ [‘Tax and Customs Board is increasing control over undeclared wages’], 15 February, available at

Tax and Customs Board (2011) ‘Maksuhaldur annab 1300 ettevõttele võimaluse parandada oma maksukäitumist’ [‘Tax authority will give 1300 companies an opportunity to improve their tax behaviour’], 24 November, available at

Kirsti Nurmela, Praxis Centre for Policy Studies


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