BELGIUM, Brussels. A new European Trade Union Confederation (ETUC) report shows how businesses use “letterbox practices” not only to pay lower taxes, but also lower wages and to impose bad working conditions.
The ETUC is the voice of workers and represents 45 mill. members from 89 trade union organisations in 39 European countries, plus 10 European Trade Union Federations. Letterbox companies are legal entities established in an EU country, where they have no (or minor) economic activities, in order to “regime shop” for lower taxes, wages etc.
The report “The impact of letterbox – type practices on labour rights and public revenue” features case studies from Germany, the Netherlands, Italy and Sweden, covering the meat, road transport, car manufacturing and construction sectors. It shows how tax avoidance often combines with exploiting workers. For the purpose of this report, the term “letterbox companies” shall be considered as not only including legal entities without any material substance, but also companies with potentially artificial incorporations where, for instance, it is questionable whether management or financial decisions are made at the place of incorporation, whilst the legal entity enjoys material benefits from the incorporation.
The cases reported include Danish Crown, a German-based holding company, which owns slaughtering and meat processing factories which subcontract workers on the site from letterbox companies in Poland, Hungary and Romania. Workers have 14–20 hour working days and no pension and health insurance payments, are not employed by the same “subcontractor” for more than 6 months and have contracts passed from one letterbox company to another.
The report also reveals that 83% of foreign direct investment in the Netherlands, and 96% in Luxembourg, are into “Special Purpose Entities” (letterbox companies): so the vast majority of “foreign investment” in those countries is for the purpose of paying less tax.
The next phase of this ETUC project, funded by the European Commission, will examine solutions to this avoidance of taxes, wages and social security payments.