Last updated: 2 July 2018
The clear preference of European Union companies for posted workers instead of local ones has already sparked controversy and has led Brussels to take initiatives for a reform in the field. Also, the debate launched in all European countries has led the authorities in the Member States to control more strictly the activity of foreign companies, especially Romanian ones, which post workers there.
In this article, we draw your attention to the way in which the French authorities, among others, interpret European legislation when performing inspections at Romanian companies.
THE SIGNIFICANT ACTIVITY CRITERION
Most inspections initiated by the French authorities are based on a provision in the French Labour Code, which requires companies that post workers to have a significant activity in their country of origin, in this case in Romania.
The French Labour Code provides that an employer can not rely on the provisions applicable to the posting of employees when he carries out strictly internal or administrative management activities in the State in which he is established or when he does business in France on a regular, stable and continuous basis. Also, an employer can not rely on these provisions when his activity involves the search and prospecting of clients or the recruitment of employees on French territory.
In such cases, the employer is subject to the provisions of the Labour Code applicable to companies established in France. In other words, it must comply with all the legal and tax obligations applicable to French companies, namely: to be registered with the French authorities, to pay taxes and social contributions in France etc.
Please note that French or European legislation does not provide for criteria that the authorities should consider in order to determine whether an activity is routinely, steadily and continuously carried out.
This assessment is performed, both in theory and in practice, by checking the opposite condition, namely whether the company has a significant activity in the State of origin. Thus, it can be seen that the only criterion taken into account by the authority is the percentage of the turnover obtained by the company in the sending country, i.e. France, in relation to the total turnover. If the turnover obtained in France is significant, the authorities may decide to requalify the company and force it to register in France, to pay taxes in France etc., all of this retroactively, taking into account the statute of limitations in terms of tax!
In practice, this interpretation of the law has posed a lot of problems to companies that, although registered in Romania, were obtaining a significant turnover in France. These companies were put in a position to be requalified by the French authorities, to be obliged to register in France and to pay important amounts (millions of Euros!) as tax or VAT in France…
EVALUATION CRITERIA STIPULATED BY EUROPEAN LEGISLATION
In relation to the abovementioned situations, it should be noted that the criteria for assessing the significant activity in the country of origin are expressly stipulated by the European legislation (Directive no. 2014/67/EU of 15 May 2014 on the enforcement of Directive 96/71/EC concerning the posting of workers in the framework of the provision of services and amending Regulation (EU) No 1024/2012) and are not limited to the turnover criterion most often used by the authorities when performing inspections.
Therefore, it is useful to remind you that the criteria set out in the European Directive for determining whether a company actually carries out substantial activities other than those exclusively related to internal or administrative management in the State of origin are the following:
• the place where the company has its registered office and administration, uses office space, pays taxes and social security contributions and, where applicable, in accordance with national law has a professional licence or is registered with the chambers of commerce or professional bodies;
• the place where posted workers are recruited and from which they are posted;
• the law applicable to the contracts concluded by the company with its workers, on the one hand, and with its clients, on the other;
• the place where the company performs its substantial business activity and where it employs administrative staff;
• the number of contracts performed and/or the size of the turnover realised in the Member State of establishment, taking into account the specific situation of, inter alia, newly established companies and SMEs.
The Directive also provides that these criteria are indicative and not exhaustive.
Thus, during an inspection, the authorities must carry out an overall assessment of all aspects of the activities carried out by a company in the Member State of establishment and, if necessary, in the Member State where workers are posted and, in carrying out this overall assessment, the authorities must apply the criteria as indicative factors.
Also, Directive no. 2014/67/EU expressly provides that non-compliance with one or more of the elements listed above does not automatically lead to requalification, and the assessment of these elements needs to be adapted to each particular case.
Hence, a high turnover obtained in France is not automatically the absolute argument for requalifying a company and forcing it to register in France and to pay taxes in that country.
In conclusion, in order to correctly determine the legal situation of a company posting employees in France, the concrete and global situation has to be assessed and all the elements characterizing the activities of that company in Romania and France must be taken into account.