The Impact of Letterbox- Type Practices on Labour Rights and Public Revenue
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THE IMPACT OF LETTERBOX- TYPE PRACTICES ON LABOUR RIGHTS AND PUBLIC REVENUE FOUR CASE STUDIES ON THE USE OF LETTERBOX COMPANIES AND CONDUIT ENTITIES TO AVOID LABOUR LAWS, SOCIAL PREMIUMS AND CORPORATE TAXES The impact of letterbox- type practices on labour rights and public revenue Katrin McGauran JUNE 2016 With the support of the European Commission COLOPHON The impact of letterbox-type practices on labour rights and public revenue Four case studies on the use of letterbox companies and conduit entities to avoid labour laws, social premiums and corporate taxes Author: Katrin McGauran Editing: Vicky Anning ISBN: 978-94-6207-087-5 This discussion paper was commissioned by the European Trade Union Confederation (ETUC) and financed by a grant of the Europe- an Commission. The content of this paper is the sole responsibility of the Centre for Research on Multinational Corporations (SOMO) and does not necessarily reflect the views of the European Union or the ETUC. Acknowledgements Special thanks are due to the following people, who provided invaluable information for this report: Edwin Atema (Bestuurders, FNV Transport en Logistiek), Matthias Brümmer (Geschäftsführer, Gewerkschaft Nahrung Genuss Gaststätten), Aline Conchon (Policy Advisor, IndustriALL-Europe), Jean-Michel Crandal (High-level expert to the French Transport and Sea Director General, France), Jan Cremers (Senior researcher, Amsterdam Institute for Advanced Labour Studies, University of Amsterdam, Netherlands), Jan Nyqvist (Ombudsman, Byggnads Väst, Sweden), Michele de Palma (national coordinator, Fiom CGIL) all members of project’s Steering Com- mittee and other presentatives from EFBH, EFFAT, ETF, IndustriALL-Europe and ETUI and Severine Picard (legal advisor and project coordinator, ETUC). Commissioned by: European Trade Union Confederation (ETUC) www.etuc.org COLOPHON Contents COLOPHON . 4 The impact of letterbox-type practices on labour rights and public revenue ACRONYMS . 7 Four case studies on the use of letterbox companies and conduit entities to avoid labour laws, social premiums and corporate taxes 1. INTRODUCTION . 9 Author: Katrin McGauran 1.1. Background to the research . 9 Editing: Vicky Anning 1.2. Methodology . 9 ISBN: 978-94-6207-087-5 1.3. Definition of letterbox-type companies . 10 1.4. Company and expert review of the findings . 13 This discussion paper was commissioned by the European Trade Union Confederation (ETUC) and financed by a grant of the Europe- 1.5. Limitations . 14 an Commission. The content of this paper is the sole responsibility of the Centre for Research on Multinational Corporations (SOMO) 1.6. Structure of the report . 15 and does not necessarily reflect the views of the European Union or the ETUC. 2. REGULATORY CONTEXT . 16 Acknowledgements 2.1. Internal market measures . 17 2.2. European Court of Justice rulings . 18 Special thanks are due to the following people, who provided invaluable information for this report: Edwin Atema (Bestuurders, FNV Transport en Logistiek), Matthias Brümmer (Geschäftsführer, Gewerkschaft Nahrung Genuss Gaststätten), Aline Conchon (Policy 3. GERMAN MEAT INDUSTRY . 19 Advisor, IndustriALL-Europe), Jean-Michel Crandal (High-level expert to the French Transport and Sea Director General, France), Jan 3.1. Labour rights violations in the German meat industry . 19 3.2. Regulatory context . 20 Cremers (Senior researcher, Amsterdam Institute for Advanced Labour Studies, University of Amsterdam, Netherlands), Jan Nyqvist 3.3. The use of letterbox companies in the German meat sector . 21 (Ombudsman, Byggnads Väst, Sweden), Michele de Palma (national coordinator, Fiom CGIL) all members of project’s Steering Com- 3.4. Danish Crown . 25 mittee and other presentatives from EFBH, EFFAT, ETF, IndustriALL-Europe and ETUI and Severine Picard (legal advisor and project 3 .4 .1 . Corporate governance . 25 coordinator, ETUC). 3 .4 .2 . Danish Crown in Germany . 26 3 .4 .3 . Description of the case . 28 3 .4 .4 . Letterbox structure . 30 3 .4 .5 . Conclusion . 32 4. EUROPEAN TRANSPORT SECTOR . 33 4.1. Labour rights violations in the Dutch transport industry . 33 4.2. Regulatory context . 35 4.3. The use of Eastern European subsidiaries for social dumping . 36 4.4. The use of letterbox companies in the European transport sector . 37 4.5. Vos Transport . 39 Commissioned by: 4 .5 .1 . Description of the case . 40 4 .5 .2 . Letterbox structure . 40 4.6. Conclusion . 43 5. SWEDISH CONSTRUCTION INDUSTRY . 44 5.1. Social dumping in the European construction industry . 44 European Trade Union Confederation (ETUC) 5.2. Regulatory context . 45 www.etuc.org 5.3. The use of letterbox companies in the construction industry . 46 5.4. Pilgrim Sp. z o.o. 47 5 .4 .1 . Description of the case . 48 5 .4 .2 . Letterbox structure and the role of Polish-Swedish Chamber of Commerce . 50 5.5. Conclusion . 51 6. LETTERBOX-TYPE PRACTICE AND TAX AVOIDANCE . 52 6.1. Letterbox companies and labour rights in the European manufacturing industry . 52 6.2. Profit shifting, tax competition and letterbox companies . 52 6 .2 .1 . Substance rules . 54. 6 .2 .2 . The growth of mailbox companies . 55 6.3. Dutch and Luxembourg letterbox sector dwarfs real economy . 56 6.4. The Dutch tax regime and the letterbox sector . 57 6.5. Fiat Chrysler Automobiles NV . 59 6 .5 .1 . Corporate ownership, structure and governance . 59 6 .5 .2 Relocation of tax domiciles to the UK and parent in the Netherlands . .60 6 .5 .3 . European Commission: Fiat’s Luxembourg ruling is illegal state aid . 60 6 .5 .4 . Conclusion: regime shopping through letterbox companies . 62 7. THE LEGAL ADVICE SECTOR . 65 7.1. Trust and Company Service Providers (TCSPs) . 65 7.2. Large accountancy firms – the Big 4 . 66 7.3. Small legal advice firms and service providers . 66 8. CONCLUSIONS AND FURTHER RESEARCH . 70 8.1. A general note . 70 8.2. Subcontracting pyramids . 71 8.3. Letterboxes are also in-house and domestic . 71 8.4. Letterboxes as tax avoidance vehicles . 72 8.5. Further policy analysis . 72 8 .5 .1 . Ending the triangular employment relationship . 73 8 .5 .2 . Posting of Workers Directive and Social Security Regulation . 73 8 .5 .3 . Making contractors directly liable for working conditions and wages . 75 8 .5 .4 . Limiting freedom of establishment and ending artificial legal entities . 76 8 .5 .5 . Rethinking limited liability . 78 8 .5 .6 . Regulating and holding the legal advice industry liable . 79 8.6. Strategic trade union choices . 79 Boxes Box 1: EU laws relevant to the use of letterbox companies for social dumping purposes ........................... 16 Box 2: Subcontracting pyramids in the German meat sector .................................................... 22 Box 3: Abuses of letterbox schemes in the transport sector involving Hungary and Latvia .......................... 38 Box 4: Atlanco Rimec at a publicly contracted construction site in the Netherlands ............................... 44 Box 5: The use of letterbox companies for social fraud in the Austrian construction industry ....................... 46 Box 6: More than the sum of its parts: transfer pricing vs. formulary apportionment ............................... 53 Box 7: Dutch APA and ATR ruling practice and loose substance rules............................................ 58 Box 8: EC press release on illegal state aid ruling on Fiat ....................................................... 61 Box 9: UK Public Accounts Committee: do Luxembourg finance entities have substance? .......................... 63 Figures Figure.