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2019 - Cross-Border Social Fraud/Abuse in Social Security

Brief description of the initiative
The phenomenon of cross-border social fraud/abuse of Social Security is difficult to apprehend. There is no or very limited systematic research at EU level on this issue. One of the reasons for this lack of data and information is that companies and Member States do not advertise their fraudulent behaviour. Also, the methods used by businesses to evade cross-border social security mechanisms are often very complex: they can rely upon a multitude of legal provisions in 28 Member States + EU law.

Companies can play a crucial role in preventing social dumping, e.g. by exercising control over their sub-contracting chains. In order to raise awareness of this issue and promote company based solutions, the project also included a training seminar for EWC members and EWC coordinators to provide them with the necessary tools and know how.

A large part of the project consisted in fact-finding missions in order to better understand the scale and nature of the phenomenon of cross-border social fraud and abuse of Social Security. A substantial number of interviews was conducted with local level trade union representatives and labour and social security inspections. The aim of these interviews was to collect facts, unravel mechanisms and identify loopholes and weaknesses. Where possible, concrete cases were presented. The fact finding phase focused on both worst and best practices.
On the basis of the fact-finding missions, three legal experts with a background in Social Security, labour law and tax law analysed the existing legal/administrative and practical situations at EU and national level, identifying loopholes and contradictions.
During the final phase of the project, at a European Conference, the project partners discussed with European and national experts about various options on how to tackle cross-border social security fraud and abuse.
The findings and the result of the discussions are available in a report “Putting an end to cross-border social security fraud and abuse”, which is available on the website of the EFBWW or at simple request.

Main objectives of the initiative
The objective of the EFBWW project on cross-border social security abuse/fraud was to collect sufficient data, facts, cases and to unravel evasion mechanisms, identify legal loopholes and ways of circumventing existing rules, and, on the basis of these facts, to elaborate concrete policy recommendations for an overall trade union position.
The collection of factual data was done during the fact finding missions and in particular by interviewing key persons in the target countries: France, Portugal, Bulgaria, Romania, Belgium, The Netherlands, Italy.
Based on the findings, two legal experts tried to identify the legal, administrative and practical shortcomings and loopholes. By doing this they also pinpointed possible solutions.
A third legal expert in the field of taxation assessed the discovered shortcomings and proposed possible solutions, which already exist in the field of cross-border tax fraud, abuse and evasion.
All findings (practical and legal) were discussed at a European conference and published in a report.

Key results
Through the field study in 7 Member States, the EFBWW established that there is a strong development in certain EU countries to reduce the social protection and security of employees and to facilitate cross-border employment by easily granting social security portable documents A1. These developments have in the first place direct consequences for the employees concerned. In case of work-related accidents, unemployment, etc. they are underinsured. This trend also has direct consequences for the sectoral social dialogue between the trade unions and employers, which risks being completely eroded. At European level, these consequences are clearly noticeable because - within the current EU system - there is a cross-border transferability system of cheap social security regimes for temporary postings from one MS to another. This leads to direct discrimination between employees, who do the same work in the same place. In addition, the current system also distorts fair competition between - the often local - companies (who have to pay the higher social charges) and the - often foreign - companies that have a large financial competitive advantage through the lower social security costs.
Cross-border coordination of social security is based on the principle of "mutual trust" between the Member States, under the assumption that all Member States do not cheat each other and do not abuse the rules in order to control the game for their own benefit. This basic principle of "mutual trust" between Member States has been repeatedly confirmed by the European Court of Justice.
Moreover, the rules on cross-border coordination are based on the principles of "country of residence", also known as the country of origin. For example, the country of residence determines the employment relationship between the employer and the employee (or the self-employed person), who (employer or employee) pays the social security contributions, the percentage of the social security contribution, the method of calculation and unilateral documents used (the widely known A1 Statement). As a host country, a MS cannot question the rules and practices of a country of residence, as social security rules are based on the country of origin principle and there is "mutual trust" between the Member States.

In this study, we have discovered various factual and legal situations in which countries provide companies with a "significant" financial advantage by temporarily posting their workers abroad. This "problem" has not escaped the European Court of Justice. The ECJ acknowledges that host country courts can ignore unilaterally fraudulent A1 documents. As such, the principle of “mutual trust” between Members States is no longer inviolable.

Based on the factual and legal arguments of this study, the EFBWW concludes that within the EU there is not only competition between companies, but also between Member States. The current European social coordination regime allows Member States to systematically "abuse" their national social security schemes in order to give their companies a strong competitive advantage by temporarily employing their employees abroad. In addition to this, the same MS also facilitate temporary posting by easily granting social security A1 documents.


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