Increasing number of inspections on foreign service providers and their employees

Increasing number of inspections on foreign service providers and their employees

Legal framework

Within the European Economic Area, we have freedom to provide services, as a result of which EEA entrepreneurs are free to provide services in another member state. To this end, they can temporarily send (post) their own employees to the other member state in order to carry out the activities necessary for the provision of services. Thus, the posted workers are covered by Directive 96/71/EC and the amending Directive 2018/957 (transposition into Belgian law by the end of July 2020).

These Directives lay down clearly defined basic terms and conditions of work which the service provider must respect in the host country in order to ensure a minimum level of protection for workers. The Directives also play an important role in promoting a climate of fair competition between all service providers (including those from other member states).

Europe also has regulations concerning the applicable social security. The EC Regulation 883/04 regulates in which country (and for what period) the posted workers are socially insured. There are two major exceptions to the main rule, the country of employment principle, namely posting for the entire duration of the provision of services to another member state on the one hand and alternately/simultaneous working in two or more member states on the other hand. Both exceptions have specific conditions which must be met in order to be applied.

In addition to the aforementioned labour law and social security rules, which are regulated at European level, we also have the double taxation treaties. Belgium has such a treaty with more than 80 countries to prevent double taxation. The treaty determines, among other things, the situations in which a permanent establishment is created and in which Belgium may levy taxes on the income of the employees and of the foreign company. In a nutshell, such a permanent establishment can be created in the following cases:

• the company in Belgium has a place of management, branch, office, factory, workshop, agency, place of extraction of natural resources, warehouse or stock of goods through which the professional activities of the company are carried out;
• the company has carried out construction work that exceeds an uninterrupted period of twelve months;
• the company has sales representatives who work in Belgium and, in this capacity, exercise a significant influence on the conclusion of the contract.

Enforcement in Belgium

From the LIMOSA and A1 databases, Check In At Work (CIAW) and the declaration of works, the inspection services collect a great deal of information about foreign entrepreneurs, posted employees, the place of employment, the sector, the Belgian client, the period of service/employment, etc…

Through extensive data mining, companies and clusters of companies with the highest risk of fraud during secondment are selected. Using these databases, the companies susceptible to fraud are highlighted and monitored.

A selection of the initiatives and measures

• tightening up the legislation on the provision of services;
• increasing the level of penalties for failure to pay wages correctly, if this is linked to other offences such as working hours, weekly rest periods, public holidays, …;
• tightening up the rules on declaration of works and withholdings on invoices when working with subcontractors with social and fiscal debts;
• introducing joint and several liability for wage debts of the main contractor and the principal in the event of serious underpayment of the employees of the sub-contractors;
• concluding protocols with governmental bodies and the regional authorities in order to improve the exchange of information on the fight against social fraud on public construction sites;
• an increase in penalties in the transport sector for failure to keep the journey forms up to date and for failure to respect weekly rest periods;
• the appointment by judicial district of a reference magistrate responsible for social dumping and the drafting of specific directives of the College of the Public Prosecutor-General for the follow-up policy in the event of social dumping;
• improving cooperation with the other European inspection services in order to optimise the exchange of information;
• tax audits on the wage withholding tax due for foreign employees;
• tax audits on the possession of a permanent establishment;
• extension of the OECD Model Tax Convention to give a wider power to levy taxes. In particular, broadening the definition of the personal and material permanent establishment;
• various adjustments to the comments on the OECD Model Tax Convention to combat abuses involving the artificial splitting of contracts between closely related companies;
• reduction of the period of secondment;
• …

The above inspections are bearing fruit. There are an increasing number of foreign entrepreneurs who are better informed about all legal obligations and formalities before contracting with Belgian clients. Moreover, there is also a growing awareness among their Belgian clients that a correct price setting must form the basis of their cooperation with foreign companies, allowing their foreign contractors to remunerate their employees correctly.

After all, the basic working conditions, including wage and employment terms and conditions, laid down in legal and administrative or conventional provisions that are curbed by criminal law, mean that the total wage cost does not deviate, or deviates only very slightly, from the normal Belgian wage costs.

Think about:

• maximum work periods and minimum rest periods;
• minimum number of paid holiday days;
• minimum wages, including compensation for overtime;
• to cover the costs of posting – accommodation, transport, food;
• conditions for the provision of workers, in particular by temporary employment agencies;
• health, safety and hygiene at work;
• …

Partly due to the current evolution in which the tax authorities also have a broader power to levy taxes, among other things due to the broadening of the definition of the personal and material permanent establishment, there are still few differences between a Belgian and a foreign company in terms of cost structure.