While politicians from Brussels create new rules to combat the so-called social dumping, the activities of „letterbox companies” established by carriers from Western European countries go unchecked. What change should the Mobility Package bring to the transport industry?
The issue of „letterbox companies” in European transport is already being investigated by the governments of some countries and by scientists. However, the amount of data on this subject is still insufficient, mainly due to the lack of effective tools and procedures that would allow identifying this type of practice.
In the opinion of the Labour Mobility Initiative, the largest think tank in Europe dealing with the posting of workers, „detection of such practices is difficult because the legislation lacks an effective definition that would allow competent institutions to objectively and effectively distinguish them from enterprises carrying out normal activities.”
How do letterbox companies operate?
So-called „letterbox companies” are usually founded only to make a profit from the differences between wages in the Member States.
The Spanish Labor Inspectorate, which has been observing the popularity of this solution among domestic carriers for several years, defines the „letterbox companies” as one, „which established a headquarters in a member state with lower employment costs in relation to the country in which it actually operates, gaining thus, in an unlawful manner, the opportunity to reduce labour costs.”
The Labor Inspectorate emphasizes that such an entrepreneur does not operate in the country of residence and on the basis of fraud uses the possibility of posting an employee abroad. Thanks to this, he can pay him a lower salary and reduce the cost of social and health insurance premiums. This is a practice that not only represents a serious threat to fair competition but also involves the exploitation of employees.
Problems of the Spanish transport industry
„Spanish transport in the hands of Romanians” were the headlines that appeared in the industry media after the publication of the report by the Spanish Ministry of Transport.
According to the report, companies with headquarters in Romania, Bulgaria, and Lithuania perform already 15 percent of Spanish international transport and their share in the local market is growing dynamically. However, are Romanians, Bulgarians, and Lithuanians responsible for taking over the shares in the Spanish market? Who are the Spaniards really competing with? According to the largest Spanish federation of transport associations, FENADISMER, „a large percentage of these companies are so-called letterbox companies founded by large Spanish players from the transport industry.” They mainly carry domestic and international transport from and to Spain, without operating in the countries in which they have registered offices.
The subject of the letterbox companies was examined more closely by the Ministry of Transport, which intensified controls in Spanish carriers already in 2017. It turned out that letterbox companies set up by Spanish transport entrepreneurs in Eastern Europe generated from 75 to 90 percent of turnover in Spain.
The activities of this type of companies in Spain are thriving, as the local posting regulations include employees who spend more than 8 days in Spain. Consequently, they practically do not include transport, and if so, to a negligible extent. The Spanish industry associations have been demanding for years to change the interpretation of regulations and to settle the deadline of 8 days during the whole month.
The numbers speak for themselves. The lowest costs of employing drivers throughout the European Union are in Bulgaria. According to the report of the French National Committee on the Road analyzing the data from 2016, an annual Bulgarian employer has to spend on average 15 859 euros on an employee. Employers in Romania (17 868 euro) and Lithuania (18 008 euro) have slightly higher expenses. This is less than half of what a company in Spain (37 892 euros) has to spend on the salary, diet and driver contributions.
In turn, carriers spend almost 20,000 euro on an employee in Poland, hence the lack of interest among Spanish entrepreneurs to set up letterbox companies there.
Belgian „letterboxes” on the radar of the inspection services
Unfair practices are committed not only by the Spaniards. The Belgians, the Dutch and Germans also take advantage of the possibilities offered by the opening the branch in the east of Europe.
In Belgium, driver salaries are the highest in Europe. It is not surprising that the Belgian carriers are establishing „letterboxes” in the East of the EU, especially since the risk has been low until recently because checking the company in Eastern Europe was too time-consuming and too complicated procedure.
However, in 2017, the Belgian inspection hired hundreds of new inspectors to increase the number of inspections to 10,000 annually. In addition, last year, Belgium signed a contract with Slovakia and Portugal to facilitate the exchange of information on posted workers. Earlier similar agreements were made by the Belgians with France, the Netherlands, Luxembourg and Bulgaria. Soon Poland will join the group of these countries.
Thanks to the above agreements, identifying „letterboxes” will be easier. They will allow the cooperation of the control services, police and courts of various countries to be narrowed down to better counteract illegal practices in the road transport sector. The checks are to concern mainly the amount of remuneration and contributions paid for the posted worker both in the country of employment and in the country of posting.
Philippe De Backer, secretary of state for the fight against social fraud, in the Belgian government, emphasizes the special importance of the agreement with Slovakia. That’s where the Belgians usually set up letterbox companies.
Report of Belgian scientists
Surprising data was also provided by the report titled „Economic analysis of the road freight transport sector in Belgium within a European context Employees and employers in ‘survival mode’?” published by the Research Institute for Labor and Society at the Catholic University of Leuven.
The analysis of sociologists not only shed new light on Belgian transport but also disproved stereotypes about „unfair” competition from the east while identifying the most serious problem of the industry – the letterbox companies.
On the basis of the data from Eurostat and Orbis base (the biggest base of private enterprises in the world), the Belgian researchers summed up the last years of the transport market, identified its development tendencies and its main problems. The situation of the Belgian carriers is not the best not only because of the Eastern European competition. In a nutshell, the local branch is not doing well. On the other hand, registering a company in countries with lower employment costs is a key element to reduce costs and a „survival strategy” for many entrepreneurs.
Based on the analysis of the data collected at Orbis, the report found that a total of 885 European road transport companies had one or more subsidiaries in another EU Member State in 2016.
According to the report, the biggest amount of „letterbox companies” were created by carriers from Italy, the Netherlands, Spain, Great Britain and Belgium.
|Number of transport companies||Number of companies with headquarters abroad||Share of companies with headquarters abroad in their total number in the EU||Share of companies with headquarters abroad in the total number of companies in a given country|
|Austria||9 234||44||5 percent||0.48 percent|
|Belgium||12 197||75||8.5 percent||0.61 percent|
|Bulgaria||19 999||9||1 percent||0.05 percent|
|Czech Republic||40 773||39||4.4 percent||0.10 percent|
|France||46 923||39||4.4 percent||0.08 percent|
|Spain||37 216||97||11 percent||0.26 percent|
|Holland||13 546||101||11.4 percent||0.75 percent|
|Lithuania||6 888||10||1.1 percent||0.15 percent|
|Luxembourg||629||16||1.8 percent||2.54 percent|
|Germany||13 330||41||4.6 percent||0.31 percent|
|Poland||69 048||19||2.1 percent||0.03 percent|
|Portugal||9 858||31||3.5 percent||0.31 percent|
|Romania||49 957||19||2.1 percent||0.04 percent|
|Slovakia||10 882||23||2.6 percent||0.21 percent|
|Hungary||20 732||19||2.1 percent||0.09 percent|
|United Kingdom||64 856||57||6.4 percent||0.09 percent|
|Italy||55 162||109||12.3 percent||0.20 percent|
|EU 15||300 612||706||79.8 percent||0.23 percent|
|EU 13||241 435||179||20.2 percent||0.07 percent|
Judgments on letterbox companies
Several judgments in the cases of letterbox companies have already been made in the Belgian and Dutch courts. In a labour court in Hasselt (Belgium), Bulgarian drivers employed by a branch in Romania claimed compensation of 200,000 euro. Despite the fact that they worked on Belgian territory, they received only 211 euro of remuneration from their employer for several years.
In October, a labour court in Belgium has opened an investigation into another 11 transport companies suspected of exploiting cheap labour force in Slovakia, through so-called letterbox companies.
Similarly, in the Netherlands, a company Rotra paid Romanian drivers working in letterbox companies in Romania, 288 euros per month. By the same principle, the company Vos Transport generated 70 percent on turnovers in the Netherlands, and half of the transports are carried out there by drivers from branches in Romania and Lithuania for around 200 euros per month.
Fair competition is primarily harmed by entrepreneurs setting up fictitious companies abroad only to reduce operating costs in their country. It is primarily the operation of these companies that drew the attention of Brussels and industry representatives to alleged „Eastern European social dumping”. Both the western and eastern transport sector suffer from it, and soon the activities of carriers from EU will be even more difficult because of the regulations aimed at „dishonest” carriers from the east.
It is also important to clearly define the model in which entrepreneurs using letterbox companies for social and tax evasion operate. Combating this should be done with caution so that the new rules do not hit those carriers who run companies in a fair manner in several countries, establishing their branches and employing local drivers who actually work in their own country.