Illegal and undeclared work in Finland leads to a large tax gap to be formed every year. The gap’s size ranges from 300 to 480 million euros. The amount of undeclared work and the resulting losses in fiscal revenue have been estimated for the first time in Finland.
In Finland, the total magnitude of illegal undeclared work is done annually for at least € 900 million, but may reach as high as € 1.4 billion per year. The information has appeared in recent reports from the Grey Economy Information Unit.
The magnitude of illegal work and undeclared wages was assessed both among wage earners and entrepreneurs. Of the total extent of undeclared work, the entrepreneurs seem to be responsible for almost three quarters. The remaining one quarter is related to wage earners.
Typically, a workplace that pays undeclared wages to workers is an enterprise in the construction sector, in the restaurant sector, the transport services sector, it may be a warehousing company or a retail trader. The level of pay is relatively low in these sectors of business activity, and payments made in cash are usual practice.
Undeclared business income leads to a tax gap of several hundred million euros. In the reports, it was estimated that the shareholders of limited-liability companies pay themselves some €430 to €590 million illegally per year. As a result, there is a tax gap of approximately €110 – €150 million annually. Undeclared payments to shareholders tend to occur in the sectors where it is common that also the workers are paid undeclared wages.
According to the reports, illegal undeclared work among the self-employed reaches €220 or even €400 million per year – meaning a roughly estimated tax gap of €70 million to €120 million. Taking into account that self-employed operators of a trade or business do not pay wages to themselves, undeclared work among them typically takes the form of submitting an income tax return where taxable profits are too low.
In the past, undeclared work has mainly been studied using various surveys. The recent reports were based, among other things, tax-assessment data, tax audit reports and other materials, and additionally, national statistics from Statistics Finland. Thus, the research method is a combination of several different approaches.
According to the Director of the Grey Economy Information Unit, Janne Marttinen: “Illegal undeclared work causes great losses, both in the form of tax revenue, as well as in the form of social insurance contributions that cannot be received. However, if the problem is examined at an international level, Finland is doing rather well. But this phenomenon is a significant issue also in our country, and we need to keep combating it in the future.”
More detailed information can be found at Finnish Tax Administration website Bulletin, 11/22/2022
Published 22.11.2022, FINREPO