Department of Jobs, Enterprise and Innovation

Submission in the context of the Joint Committee’s Further Scrutiny of the Proposal for a DECISION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on establishing a European Platform to enhance cooperation in the prevention and deterrence of undeclared work [COM (2014) 221]

Subsidiarity deadline:09/06/2014

1.  Contribution to Oireachtas Scrutiny

The Department of Jobs, Enterprise and Innovation has previously submitted information to the Joint Committee in the standard format prescribed for Oireachtas Scrutiny notes. This additional note seeks to address relevant issues arising from the decision by the Joint Committee that the proposal warrants further scrutiny.

2.  The legal base for EU action: whether the EU is competent to act on the basis of Article 153 TFEU?

The European Commission maintains that the EU has the competence to act in the field of undeclared work based on the Social Policy articles in the TFEU. In particular, Article 151 TFEU stipulates that the Union and the Member States "shall have as their objectives the promotion of employment, improved living and working conditions, […] proper social protection, […] with the view to lasting high employment and the combating of social exclusion."

Article 153 TFEU lists the fields where the Union shall support and complement the activities of the Member States, which include working conditions, integration of persons excluded from the labour market and combating social exclusion.

The proposal for enhanced EU cooperation in deterrence and prevention of undeclared work is based on Article 153 (2) (a) TFEU, which allows the European Parliament and the Council to adopt measures designed to encourage cooperation between Member States through initiatives aimed at improving knowledge, developing exchanges of information and best practices, promoting innovative approaches and evaluating experiences, excluding any harmonisation of the laws and regulations of the Member States.

Some Member States have expressed a preference in relation to similar initiatives for reliance on individual bodies with voluntary membership, rather than the mandatory membership implied by an instrument (a Decision in the meaning of Article 288) addressed to the Member States which is binding in all respects upon the addressees. The proposed legal base will allow for mandatory participation and will cover all three “pillars” of undeclared work, namely: labour, social security and taxation. Member States will not have to take a decision on whether to participate, as all Member States will be expected to participate from the outset.

The Irish Government’s position
Reliance by the Commission on Articles 151 and 153 (2) as the legal base for this proposal is considered appropriate since they have a clear focus on “the promotion of employment, improved living and working conditions, […] proper social protection, […] with the view to lasting high employment and the combating of social exclusion” and encouraging “ cooperation between Member States through initiatives aimed at improving knowledge, developing exchanges of information and best practices, promoting innovative approaches and evaluating experiences”
The main objectives to be achieved by this initiative are the promotion of employment and of improved working conditions (Art 151 TFEU). Taking into account the fact that the fight against undeclared work in different Member States relies on different types of enforcement bodies, it is desirable that this initiative be extended to all relevant national enforcement authorities, including those which are not directly engaged in the employment and social fields, but are also responsible for, or have a role in the deterrence or prevention of undeclared work, such as taxation, migration and customs authorities.
The Irish Government has, accordingly, no objection to the use of Article 153(2) TFEU as the legal base for the establishment of the Platform.

3.  Whether the action proposed is consistent with the principle of subsidiarity?

The principle of subsidiarity rules out Union intervention when an issue can be dealt with effectively by Member States at central, regional or local level. This is not the case for undeclared work which has been proved to have significant cross-border spill-over effects.

The action by the Union in this instance is consistent with Article 5(3) TEU which sets out three preconditions for intervention by Union institutions in accordance with the principle of subsidiarity:

·  the area concerned does not fall within the Union’s exclusive competence;

·  the objectives of the proposed action cannot be sufficiently achieved by the Member States;

·  the action can therefore, by reason of its scale or effects, be implemented more successfully by the Union.

Preventing and deterring undeclared work are primarily tasks of the Member States. To tackle undeclared work, Member States apply a series of measures, including a mix of preventive and detection/deterrence measures targeted at the reduction of the attractiveness of undeclared work, administrative reform and simplification and strengthening the surveillance and sanction mechanisms. However, currently there is no coherent approach at anEU level to prevent and deter undeclared work and tax fraud.

The objective of the proposed Platform is tofacilitate, promote, encourage and support co-operation among the EU Member States, rather than the introduction of any specific binding agreements or harmonisation of laws. The proposed instrument is not in any way prescriptive - it is not intended to dictate to the Member States the manner in which they should tackle the question of undeclared work. Rather, the instrument aims to improve the manner in which this issue is addressed across the EU by exchanging best practices and information, developing expertise and analysis and facilitating and supporting cross-border operational actions.

The proposed instrument is of limited significance in terms of subsidiarity and proportionality concerns, as it is essentially about facilitating cooperation between all Member States covering the pillars of undeclared work, in particular: labour, social security and tax. No formal measures are required to be taken within our legal order arising from the establishment of the Platform at EU level.

The Irish Government’s position
Ireland welcomes the added value of support at EU level in addressing the problem of undeclared work. Given the nature of the problem to be tackled and the positive contribution that the proposed Platform might make to improving cooperation by bringing together Member States' enforcement bodies — the labour and social security inspectorates, tax and migration authorities — together with employers' representatives and trade unions, the exercise of the Union’s powers is justified. The objective is to facilitate the EU Member States in sharing information and best practice and in identifying any future steps that might be taken in this area, whether at national or by mutual agreement through transnational collaboration. Currently Member States are unable to achieve these objectives satisfactorily through the current limited coordination methods (which in most cases have a different focus or a more limited membership) operating at EU and international levels.
The Irish Government takes the view that all operational aspects of the measures to combat undeclared work (such as information and awareness campaigns, inspections, enforcement actions, etc) that may be the subject of exchanges of information within the proposed Platform remain exclusively within the competence of the Member States involved.

4.  Is the action proposed proportionate to the objectives which the draft Decision seeks to achieve?

The new Platform will undoubtedly fill a gap arising from the absence of any formal mechanism at EU level for all relevant authorities from the Member States to address issues related to cross-border aspects of undeclared work.

The number and nature of institutions dealing with undeclared work in Europe is multiple, among which are included labour inspectorates, social security, tax administration, immigration services and to some extent the police, all of them with a specific nature and mandate that may in some cases not be well known to their counterparts or to a large extent not known from one country to another[1].

The majority of Member States have welcomed the proposed Platform as a means of promoting inter-agency approaches of the kind that have been long established at national level in Ireland (i.e. the tripartite Hidden Economy Monitoring Group has come to be regarded in the context of EU peer reviews and mutual learning exercises as an exemplar of such approaches, as are the Joint Investigation exercises carried out by DSP, Revenue and NERA).

In line with the Europe 2020 Strategy, the diversity of circumstances (e.g. the incidence of a high tax wedge and labour costs, too much red tape, low trust in government, lack of regular jobs on the labour market and high levels of social exclusion and poverty, etc.) in the different Member States needs to be examined and a forum with a specialist focus, such as the proposed Platform, can help to make labour markets more inclusive.

The Irish Government’s position
The Irish Government is satisfied that the proposed Platform does not go beyond the activities set out in the instrument and that any measures adopted would exclude any harmonisation of the laws and regulations of Member States. Additionally,it is acknowledged that the projects undertaken by the Platform would be voluntary and non-binding and would take the form, for example, of non-binding guidelines for inspectors, handbooks of good practice and common principles of inspections to tackle undeclared work.
The Irish Government welcomes the opportunities that the Platform can open up for transnational exchanges of information and mutual learning between enforcement authorities.
It also supports the provisions whereby the proposed Platform would seek to improve best practice by encouraging Member States' enforcement bodies — primarily the labour inspectorates and social security, tax and migration authorities — to work together with employers' representatives and trade unions in order to share information and to identify any future steps required to assist those engaged in informal or undeclared work to make the transition to the formal economy.

5.  Would the action proposed adversely affect national competence in the field of social protection?

Undeclared work not only exposes workers to unregulated working conditions and potentially lower earnings but also deprives governments of revenue support by promoting unfair competition in the single market via lost tax revenues through tax evasion and non-payment of contributions. But it also has a direct impact on the society, as it concerns working conditions, safety in the workplace, exploitation of vulnerable categories such as immigrants, young people, women, low-skilled or poorly qualified workers, non-payment of national insurance contributions and its implications in terms of pensions and social cover.

Article 48 of the Treaty on the Functioning of the EU provides that the Union shall adopt such measures in the field of social security as are necessary to provide for freedom of movement for workers. This provision finds expression in Regulations 883/2004 and 987/2009 which coordinate social security provisions across the EU. The Treaty provision provides for aggregation of contributions made in different member states and the export of payments. However, the design and financing of social welfare systems remain a competence of the Member States.

The Irish Government’s position
In Ireland the problems that undeclared work poses for the social security system are being tackled through a collaborative engagement on the part of the Department of Social Protection with other agencies and, in particular, with NERA and Revenue, through a combination of intelligence gathering, assurance checks, outdoor operations including inspections and direct investigations. These powers of investigation, enquiry and inspection are specifically prescribed in the relevant Social Welfare Acts. Any additional measures to enhance powers to deal with shadow economy activity or undeclared work would, in the first instance, have to be articulated in national social protection legislation. In addition, any measures with regard to Social Welfare legislation must be considered in a budgetary context and accordingly within a national context and within our exclusive national competence.
The Irish Government does not, accordingly, consider that the proposed instrument would impinge on its national competence in the field of social security.

6.  Would the action proposed adversely affect national competence in the field of taxation?

Whilst the EU has input into matters such as VAT and Customs, it should be emphasised that direct taxes, such as income tax and corporation tax, remain exclusively within the competency of national Governments and will not come within the scope of the matters addressed by the proposed Platform.

There are, however, established mechanisms for co-operation in the field of taxation between EU jurisdictions with regard to –

·  the VAT EUROFISC programme (re countering intra-Community VAT fraud); and

·  double taxation agreements as between jurisdictions (most such double taxation agreements are based on the OECD’s Model Tax Convention on Income and on Capital.).

The Irish Government’s position
From the perspective of the revenue authorities the particular problems encountered in relation to undeclared work arise where ‘undeclared income’ is found to result from work which may or may not be declared (i.e. some individuals declare work but under-declare the amount of income from that work) and, in particular, the undeclared income of cross border workers.
The Revenue Authorities welcome the opportunity to engage with tax authorities in other jurisdictions and other relevant authorities in tackling the shadow economy and tracking undeclared income from work (be it declared work or undeclared work).
The Irish Government does not, accordingly, consider that the proposed instrument would impinge on its national competence in the field of taxation policy and operational practice.

7.  Experience of cooperation and collaboration at national level

The Irish Government adopts a zero tolerance approach towards social protection scheme fraud, including that shadow economic activity and undeclared work. A cross departmental approach is taken (led by the Department of Social Protection, in conjunction with the Revenue Commissioners and the National Employment Rights Authority). Policing what is conventionally viewed as shadow economy activity and undeclared work is as much about ensuring a level playing field for compliant businesses as it is about combating social welfare fraud and bogus self-employment. A range of specific activities are being undertaken to ensure that shadow economic activity and undeclared work are appropriately targeted.

These include: