Trilateral Conference on “Tax and social fraud”

Trilateral Conference on “Tax and social fraud”Parental benefitMonika ToigerEstonian Social Insurance Board

Trilateral Conference on “Tax and social fraud” • The main task of Estonian Social Insurance Board is organization and coordination of grant and payment of the state benefits, pensions and compensations • Parental benefit • Income related benefit • The parental benefit is calculated on the basis of the income, subject to social tax earned in calendar year prior to the day on which the right to the benefit arose • Income earned abroad is not subject to social tax in Estonia and is not taken into consideration

Trilateral Conference on “Tax and social fraud” • Estonian Tax and Customs Board • Collecting taxes in Estonia, including social tax • The benefits paid by Health Insurance Fund (sickness benefits, maternity benefits etc), Unemployment Fund (unemployment benefits) and Social Insurance Board (parental benefit, pension) are all calculated on the basis of the income subject to social tax earned • The employers are required by the law to pay social tax for all persons employed, whereby the rate of this tax is 33% of the taxable amount, and of which 20% is allocated for pension insurance and 13% for health insurance

Trilateral Conference on “Tax and social fraud” • If the parent has no former income, then he/she has right to get benefit in minimum rate, which is 278,02 € per month in 2012 • Permanent residents and aliens residing in Estonia are entitled to parental benefit • People have the right to receive parental benefit from the day following the final day of pregnancy and maternity or adoption leave. Parental benefit is paid for the period of 435 days • If a mother doesn't take pregnancy and maternity or adoption leave, she has the right to parental benefit starting from the moment her child is born

Trilateral Conference on “Tax and social fraud” • The upper limit of the amount of the parental benefit is three times the average salary from the year before last, which in 2012 is 2143,41 € per month • Parents may work or earn income during the period in which they receive the parental benefit, but if the income earned exceeds the rate of the benefit, the amount of the benefit for the month in question is reduced • The parental benefit is not paid if the income earned is more than five times higher than the base rate of the benefit, i.e. 1390,10 € per month

Trilateral Conference on “Tax and social fraud” • People try to find different solutions to get higher parental benefit • For example • Employer hired a person with contract for half time work and another person with contract for full time work • The person who got salary for full time work, was working only with half time. Her income was declared for the calculation of parental benefit • She didn't get this income, based on which the parental benefit was calculated • In reality she paid half of her salary to another person, who was working full time with half time contract and whose legal income was arrested by bailiff

Trilateral Conference on “Tax and social fraud” • Tax and Customs Board has made a report where they took the people whose parental benefit was calculated on the basis of 2009, 2010 income (registered social tax) under observation. Their aim was to find out how many people from them had the changes in their income (higher) in 2009 and 2010 • 30% out of them had had a change in income • 219 social tax declarations of 2009 were changed retroactively • 566 social tax declarations of 2010 were changed retroactively

Trilateral Conference on “Tax and social fraud” • Changes, where former declaration with lower income was annulled and higher income was declared • Also declarations, where previously higher income was declared and later (after the parental benefit had already been granted) the declaration was changed and the lower income was shown • One group are the employers who declare high income and don’t pay social tax • If the social tax is paid, it seems that everything is in good order • If the company’s owner is a man whose wife is his only employee and he hired her the same time when her pregnancy started and started to pay very high salary to her, this is apparently tax and benefit fraud

Trilateral Conference on “Tax and social fraud” • It is very hard to investigate and prove the fraud • The employee can say that the employer has the duty to pay social tax, not the employee andhe/she didn’t know about the fraud. The employers can say, that they didn’t get any profit from that. • A meeting was held with Tax and Customs Board and Ministry of Social Affairs to find out what are the possibilities to avoid such situations • Longer reference period: if at present the person´s benefit, who has right for parental benefit in year 2012, is calculated basis on her/his previous calendar year income, then this could be year 2010(income of the year preceding to the previous year prior to the day on which the right to the benefit arose)

Trilateral Conference on “Tax and social fraud” • People move abroad to work, to live • People have obligation to inform Social Insurance Board and Population Register about their right address • People don’t inform authorities about this • If the entire family moves abroad and there is no connection with employment in Estonia (child care leave etc), there is no right to get family benefits • Connection with employment and EU, could be right to get benefits • Primary and secondary payment

Trilateral Conference on “Tax and social fraud” • The primary competent state has obligation to pay benefits in full rate • The secondarily competent MS should provide the amount of the differential supplement whenever there remains something to be paid (if the benefit rates are higher in this state than in primary competent state) • It is not allowed to get family benefits from two countries in full rate for the same period • Regulations 883/2004, 987/2009

Trilateral Conference on “Tax and social fraud” • People move from one country, where they used to reside, to another and another and they are just claiming benefits from the first state, their aim is to get benefits, “shopping of benefits” • Family has moved to Spain and has not informed Estonian Population Register, nor Social Insurance Board about this • New baby is born in Estonia and family is claiming for parental benefit in Estonia (according to residence)

Trilateral Conference on “Tax and social fraud” • Actually they have been living in Spain already for many years • Estonia starts the payment of benefits • It is a benefit fraud when people claim benefits, but they have no right to claim them • At the end of the day this is big money for the states • A lot of the cases are never discovered • Time limits in national legislations for recovery of unduly paid benefits • How to get to know about the cases • Information from competent institutions from other MSs, information from other competent institutions inside the state (Health Insurance Fund) • Overpaid amounts of the benefit shall be reclaimed

Trilateral Conference on “Tax and social fraud” • The information between MSs doesn´t move quickly enough • Sometimes another MS starts payment of benefits without asking information from another state (former state of residence, employment) • People don´t inform authorities about their moving, employment • The problems of determination of the legislation applicable • The basic rule: the state where the person is employed • More than one state involved, then special rules apply • Determination of the country of residence

Trilateral Conference on “Tax and social fraud” • How to avoid overlapping of benefits • Active assistance between the institutions in different states and inside the state • Bilateral cooperation(neighbouring countries) • For example data exchange between Estonian and FinnishPopulation Registers, regular meetings between competent institutions • Regular meetings of experts form institutions in order to create a network between MSs at the EU level • Informing the citizens, employers about their rights and obligations

Trilateral Conference on “Tax and social fraud” • Electronic data exchange • EESSI (Electronic Exchange of Social Security Information) • 1. May 2014 • All data concerning social security should be possible to exchange electronically between MSs • Big challenge to put together all the business needs and technical possibilities • The possibility to control from database if the person gets any benefits or social insurance from other MS-s • Doesn´t solve all problems • Human factor always remains

Trilateral Conference on “Tax and social fraud” • We must not forget that the rules for coordination of national social security systems fall within the framework of the free movement of people and should contribute towards improving their standards of living and conditions of employment • The aim of the regulations is not to give the opportunity of “shopping the benefits”

Trilateral Conference on “Tax and social fraud” Social Insurance Board www.ensib.ee + 372 640 8118 Estonian Tax and Customs Board www.emta.ee +372 676 1200

Thank you for your attention!

Trilateral Conference on “Tax and social fraud”