The life of some fifty large debtors, who have been comfortably dodging taxes for years, will become much tougher this year. The Tax and Customs Board will go to court to demand their bankruptcy and most culprits would be banned from business.
A large debtor in the broadest sense is a person who owes the state a considerable sum he has failed to pay for a longer time.
Airi Jansen-Uueda, head of special procedures division of the Tax and Customs Board, the champion of the issue, was unwilling to specify the precise range, but provided the framework, which would contain the top fifty tax dodgers. Their debts begin at hundreds of thousands of euros and reach dozens of millions.
According to Jansen -Uueda, most of them are old acquaintances of the Tax and Customs Board, or individuals who have been addressed in different ways for years, but who have refused to cooperate, let alone pay their debts.
The major debtors are often businessmen in abject poverty or subsisting on minimum salary yet driving expensive cars or living in luxurious homes. The Tax Board knows that they are covertly engaged in business – through friends, fronts or family members while remaining the real beneficiaries.
The problem is hardly new. Newspapers have been writing for years about schemes where “businessmen” scuttle a firm, move away the funds, leave creditors and the state with nothing and start again. And this goes for the Tax and Customs Board as well. Finally, the long-lasting problem is being addressed.
What will they do with the debtors? Bluntly speaking, the Tax and Customs Board will appeal for the debtors’ bankruptcy. This in turn will result in a ban on business activities, meaning that the debtor can no longer be engaged in entrepreneurship or manage companies. “If people have millions of debts and they absolutely do not care, they are not suitable to do business,” Jansen-Uueda declared.
If a private individual has unpaid debts, it need not mean much in business. He may tell business partners that the claim is unfair or questionable. But personal bankruptcy as such is unequivocally understood internationally and a state bone prefers to avoid, Jansen-Uueda explained.
One could ask why the Tax and Customs Board reacted only now. First, calling for large debtors’ bankruptcy has not been among the primary goals of the Tax and Customs Board for years. Secondly, dealing with a number of debtors has reached the stage where all other methods have been tried and filing insolvency claim is the only remaining measure.
Thirdly, insolvency of debtors has been claimed since 2014, but more emphasis has been put on recovering the money for the state. Now the Board is starting more vigorously claiming the bankruptcy of quite insolvent firms.
Although the claims against the debtor would be reviewed in case of bankruptcy and the money would be divided proportionally, Jansen-Uueda does not expect a major influx of cash to the treasury. The primary goal is cleaning up the business scene, she says.
“This could improve fair competition and clean out frauds, who have been cheating the state and their partners and who are likely to keep doing it in the future,” Jansen-Uueda explained.
The Board wants to drag those individuals out from the shadows in order to improve the awareness of their partners at the very least. “This results in a loss of trust and making business will become more difficult or downright impossible for those persons,” she said.
Although the debtors would be squeezed harder then ever before, the Tax and Customs Board does not give up hope for friendly settlement. Jansen-Uueda said that they would not rule out settlement with major debtors if the latter show initiative to pay back their debts and improve their situation.
Obviously, claiming the insolvency of the to fifty debtors is only the tip of the iceberg. Bankruptcy claims are costly for the Board, both time- and moneywise. There are problems with many more people, in fact. This includes struggle against the use of fraudulent liquidators and fronts. Yet the first step has been taken, says Jansen-Uueda – this sends a message that the problem of large-scale debtors has not been forgotten.
Give up the business license
But what do the businessmen think of the tougher policy? According to Mait Palts, head of the largest Estonian organization joining entrepreneurs, the Chamber of Commerce and Industry, it should be kept in mind that every debtor with his story is unique. “They should be judged that way. Debts have always their causes.”
In his opinion, resolute action is called for if there is a business plan – to make debts all the time and get rid of them via insolvency procedure. A sense of impunity should not be allowed to emerge, Palts said, adding that enterprises keep complaining that the same persons keep evading the rules without difficulties.
“Such persons should receive ban on making business, all right. Not randomly but based on risk analysis. It could be compared with traffic. If someone keeps breaking the regulations, it is time to take away the license. You can get it back after some time,” Palts summed up.
Head of the Estonian Union of Creditors
It is very good that the Tax Board is trying. But in the broader perspective, fifty entrepreneurs are just the tip of the iceberg, since dumping indebted enterprises is a massive practice.
A creditor’s chance of recovering money from insolvency procedure is almost nonexistent in Estonia. That’s why only very naïve or, on the contrary, very determined creditors claim insolvency if they have decided to spend their own money. The share of entrepreneurs filing for bankruptcy in court is quite marginal. We should actually point them out in recognition. As the Tax Board said, their goal is not to recover the money, because that is a lost cause. The goal is mainly to punish them with ban on business activity.
But we have to admit that if the ban only lasts as long as the bankruptcy procedure, the joy will be short-lived. It expired with the termination of the procedure or striking the firm from the business register, after which such bans cannot be displayed in public.
It is due to the fact that such information belongs to private information and entrepreneurs take care to have any information about their person deleted everywhere for good.
Liquidator of companies
It seems to me that the Tax Board is doing the right thing. It did take them some twenty years to modernize their attitude.
Yet the problem cannot be solved at one strike. It is inevitable that the wrong heads will roll at first. I mean that the real beneficiaries should be sought out and brought to justice.
For example, in case of assassination the one who orders the killing unlawfully sentences someone to death. The perpetrator is merely a specialist, for instance, a former special forces solder or a sniper.
When squeezing the big debtors they should concentrate on proving and punishing the malicious intent of the clients, Otherwise they would only hit at the fronts. Unfortunately, nothing depends on them. Ban one and two new ones will show up.
A front will take the business ban and go on to sell tires or build houses. He would have never become an entrepreneur anyway. But the real culprit will find new fronts to sign his documents.
I have been seeing it for more than twenty years in the construction business. Nothing happens to the bosses.
Hundreds of subcontractors have suffered because of the same gangs an nothing happens. What is needed is more thinking, just waving an axe around and boasting has zero effect. Cut off one head, two more will grow back.