The grey economy
Obligation to investigate
Obligation to investigate - Alasivu
Before signing any agreements, the contractor must obtain the following reports on the hired-labour companies and subcontractors concerned:
- report on entries in the withholding tax register, the employer register and the register of taxable persons liable for VAT,
- Trade Register extract or a document with comparable content,
- report on tax payment status,
- certificate stating that employee pension insurance has been taken out and that pension insurance contributions are paid up, or a report stating that a payment agreement concerning outstanding pension insurance contributions has been signed,
- report on the collective agreement or principal terms and conditions of employment applying to the work in question,
- report on how occupational health care is provided, and
- certificate stating that statutory accident insurance has been taken out (agreements concerning construction).
Contractors may themselves retrieve tax information on their partners from the public tax debt register. Contractors may print out their partners’ tax debt register details through the online Business Information System.
The tax debt register will show whether a company has outstanding tax liabilities amounting to EUR 10,000 or more or has neglected to file periodic tax returns within the past six months. The tax debt register does not show how much a company owes; it merely states whether a company has outstanding tax liabilities amounting to EUR 10,000+ or not. If a company has a valid payment arrangement with the Tax Administration, the company’s tax liability will not be entered in the tax debt register even if it exceeds EUR 10,000.
If there are no entries on tax liabilities in the tax debt register, the contractor does not need to obtain any further documentation on the partner’s tax status. If the tax debt register reveals the existence of outstanding tax liability, the contractor must also obtain a tax debt certificate in order to comply with the obligation to investigate.
Should the tax debt register not include the contract partner (for example a foreign community which does not have a branch in Finland), the contractor must require and obtain from his contracting partner a certificate showing that the taxes were paid, a certificate showing the tax debt or an account showing that a payment plan for the payment of the tax debt has been made.
The contractor must always evaluate in good faith whether partners intend to honour their statutory liabilities. If a partner’s tax debt is not insignificant and if it is considered that the contractor must have known that the partner did not intend to honour their statutory liabilities, an increased negligence fee may be imposed on the contractor.
Exemptions from the obligation to investigate
Otherwise, the reports and certificates required in the Act on the Contractor’s Obligations and Liability when Work is Contracted Out do not need to be obtained if the contractor has justifiable cause to trust the partner to comply with their statutory obligations. This exemption applies if the partner is a body governed by public law listed in the Act (e.g. the central government, a local authority or a parish) or a public limited liability company. A reason for trust can also be based on earlier contractual relationships between the contractor and the contracting partner, or on the fact that the operations of the contracting partner are well-established.
In order to be considered well-established, a company must have been in business for an extended period of time, generally defined as three years. The company must have been actually engaged in business operations during this time. In other words, a shell company with no operations of its own cannot be considered a well-established company.
Contractors must themselves assess whether they consider the operations of a partner well-established before signing an agreement. The contractor must be able to show that he or she has considered if the activities of the contracting partner are established before concluding the contract. Even if the company has been in existence for a long time, the contractor is required to obtain the reports described above if any changes have occurred in the company’s operations or if there is reason to believe that the company intends to default on its statutory obligations. The contractor must require and obtain the accounts and certificates, for example if the owner of the enterprise has changed or if pubic information indicates that the enterprise has neglected its statutory duties or if the enterprise has been eliminated from the preliminary taxation register.
Construction is an exception to the general rule: in agreements concerning construction, the contractor is never exempt from the obligation to investigate on the basis of an established contractual relationship, well-established operations of the partner or any other comparable reason.
In obtaining the reports required by law, contractors may become privy to confidential information concerning partners. A contractor or any employee of the contractor may not disclose such information to any third parties. A person obtaining confidential information may not disclose it to third parties even after that person is no longer in the position in which he/she obtained that information. Confidential information includes but is not limited to the following: details on tax payments or tax debt, and details on the taking out of pension insurance, pension insurance contributions or outstanding pension insurance contributions.