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[Excerpt] Among the fraudulent contracting of work practices, one of the most difficult to identify is the creation of sham companies (usually, in another country). Sham companies are essentially new entities created to disguise the real employer.

Creating a company, even abroad, is – of course – legal and may well be institutionally and economically advisable. However, when the only purpose of its creation is to benefit from more favourable regulations relating to labour and tax (and not to develop an activity in the country), then questions should be asked about the ‘genuine’ nature of the company.

The Eurofound study Exploring the fraudulent contracting of work in the European Union emphasises that the term ‘sham contracting’ or ‘sham companies’ embraces a diversity of fraudulent practices, embedded in different institutional contexts (Eurofound, 2016a).1 Fraudulent practices are perpetrated for different purposes, the most important of which are to avoid paying, or to save, employment-related taxes and social security contributions, and to evade employers’ liability towards employees. Beyond some recent analysis of ‘letter-box’ companies,2 there is not much research into sham contracting or sham companies. In addition, EU legislation has not played any role in this respect.

Sham companies share the common goal of disguising the real employer. This can be achieved through different mechanisms such as:

  • the creation of companies without assets, generally within subcontracting chains

  • commercial or civil law contracts between companies where employees are misrepresented as contractors or company owners

  • workers’ cooperatives, where workers lack actual control over the organisation’s decisions.


Suggested Citation
European Foundation for the Improvement of Living and Working Conditions. (2017). Fraudulent contracting of work: Sham companies (Austria, Estonia and Italy). Luxembourg: Publications Office of the European Union.