Building industry and social partners call for stricter Social Fraud Bill

Underhand dealings of so-called 'pseudo-companies' in the construction sector are costing the Austrian state up to EUR 1 billion of taxes and social security contributions each year. The Social Fraud Bill, that came into force on 1 March 2005, is devised to combat organised illicit work and fraudulent pseudo-companies. The building industry and the social partners criticise that higher penalties will not solve the problem. They demand that employees shall already get registered at the Association of Social Security Providers before they take up work.

In face of reports on large-scale social fraud and an estimated undeclared work volume of EUR 8.6 billion in the building industry last year, the Social Fraud Bill was passed at the end of 2004. The bill extended the existing legal provisions of criminal law concerning organised tax and social fraud (AT0409201N). Before this legislation operators of 'pseudo-companies' had only been threatened with administrative fines. Since 1 March 2005, they face imprisonment of up to five years. The term of detention for organised undeclared work was extended to two years.

Pseudo-companies are founded as private limited liability companies and obtain subcontracts with well-established companies. Shortly after the foundation the statutory minimum capital of EUR 35,000 disappears and the two obligatory managing directors resign. After the works contract concerned is carried out the pseudo-firm declares itself bankrupt, with the implication that taxes and social security contributions remain unpaid. As these companies never plan to pay taxes or social insurance contributions, they can offer their services for dumping prices. About 95% of the companies in the building industry raise suspicion (AT0302202F).

The building industry and the social partners criticise that higher penalties introduced by the Social Fraud Bill do not address the root of the problem. They appreciate the increase of the number of staff of the law enforcement unit to combat illicit work (Kontrolle der illegalen Ausländerbeschäftigung, KIAB) but demand that employers have to register their employees at the Association of Social Insurance Providers (Hauptverband der Sozialversicherungsträger, HSV) before the commencement of work. Otherwise, one can hardly prevent fraud. This was the most controversial issue in the discussions preceding the passing of the bill. The point was finally dropped due to the high operating expenses. The status quo is that, employers have 24 hours for registering their employees at the HSV.

Another problem mainly affecting the construction industry as a result of the enlargement of the European Union is the increasing number of 'pseudo self-employed people' (Scheinselbstständige) from Eastern Europe. Posted workers are ensured a minimum set of rights by the Directive 96/71/EC concerning the posting of workers in the framework of the provision of services. Its basic principle is that the working conditions and pay in effect in an EU member country are applicable both to domestic employees and to employees from other EU countries posted to work there (AT0306204T). Substituting employees for pseudo self-employed foreign workers means circumventing this directive, because this group is not covered by Austrian collective agreements. This practice puts pressure on given wage levels, leading to 'social dumping'.

The construction industry, employer organisations and organised labour jointly demand that this loophole is plugged.

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