By Jens Erik Holmås, Tax Crime Departmental Director, Tax Region South.
The joiner performed decorating work on the holiday home worth more than NOK 300,000, thereby contributing to tax and national insurance evasion of more than NOK 90,000.The result was a 21-day custodial sentence. In addition, the holiday home owner's saving, calculated as NOK 80,000, was forfeited to the Treasury.
In the case, the State prevailed in the Supreme Court in its view that private individuals can be punished by imprisonment if tradesmen are paid under-the-counter, thereby contributing to serious tax evasion. When the client – in this case, the holiday home owner – is aware that the job is being done without tax and national insurance being paid, contributory liability may ensue. This liability includes both a requirement that the client himself must pay for the tradesman's unpaid tax and national insurance, and a risk of imprisonment and confiscation of the saving.Undeclared work threatens the financing of the welfare state. In addition, the black market distorts competition. It can force reputable businesses out of the marketplace.
The last major undeclared labour survey carried out by TNS Gallup in February 2009 for SMSØ, the partnership to combat the black market, showed that 37 per cent of those asked had hired or considered hiring undeclared labour, while 43 per cent said they knew someone who had hired undeclared labour.The purchase of undeclared services by individuals is a serious problem in society.
In its justification for the strict sentencing, the Supreme Court therefore placed considerable emphasis on the deterrent effect.
There are numerous reasons for paying above board when having building work done. Surveys show that tradesmen who are lax about tax and national insurance are also lax about laws and regulations and agreements they have made. It has been shown that, in many cases, disreputable tradesmen perform poor quality work. As a result, individuals may incur considerable extra costs in having the work re-done.
Every job done under-the-counter reduces the State's revenues and hurts municipal and national finances. This harms the welfare state. The Tax Administration's checks show that undeclared labour and tax evasion are on the rise – consequently strong measures such as more prosecutions, the imposition of supplementary tax and imprisonment are required to stave off this trend.
In the case mentioned, the joiner was sent to prison for performing undeclared labour. The Tax Administration's checking of tradesmen in order to detect undeclared labour is still the main gateway to inspection activities – those performing illegal undeclared labour must be stopped and held financially accountable. The new element is that private individuals – those who hire this undeclared labour – risk both prison and confiscation of funds. The judgement is a powerful signal that hiring undeclared labour is a socially harmful activity that must be stopped.
By hiring undeclared labour, you encourage tradesmen to act illegally.Many might argue: "I have no way of knowing if the tradesman intends to pay the requisite tax and national insurance". And this is a difficult assessment to impose on the ordinary citizen. But nonetheless, tradesmen who are acting illegally usually present various alternatives: "With or without VAT?", "If you want a bill, the price will be different", or "The price is so low, there's no room for tax or national insurance".These are the sort of things that should ring the warning bells. Some agreements are made verbally. But what options do you have for a complaint then?
The Supreme Court judgement places a duty of care on each of us in relation to restricting the black market and limiting the scope of black marketeers.