Complus Consulting : One Big Minus for the Taxpayer

Complus Consulting : One Big Minus for the Taxpayer

Remember the old saying,  "If it's too good to be true, it probably is."?

With all the talk lately of a grand project to build a 600 million euro datacenter in Estonia (more on
that later), we thought it would be a good time to visit one of the grand projects proposed in the past.

Skeptical about large projects in Estonia. And the moon landing.

700 Jobs and Prosperity for All

Complus Consulting is an Estonian IT firm that handles data processing and back-office IT support.  Think of them like server monkeys, doing basic tasks like swapping out broken hard drives in computer servers, checking that a nightly report ran OK, and so on.

They write novels (and this blog) in their spare time.

Complus attracted great attention back in 2010 when they announced plans to create 700 jobs.  700 jobs! That’s huge for Estonia! To put this in perspective, Swedbank, one of Estonia’s largest companies, has 2,454 employees, and they have offices all over the country and an enormous operation.

Who would work in these jobs? This is where it gets interesting, especially to politicians. Complus’s plan was to take low-skilled workers (without IT skills) and train them to change hard drives and so on.

Now if you’re a politician, this is great news. A lot of the unemployment in Estonia, especially back in 2010, was comprised of low-skilled workers. The 17 year olds who dropped out of high school in 2006 to go work in lucrative construction jobs found themselves unemployed when the building boom went bust. Lacking a proper education or any skills other than swinging a hammer, their prospects were bleak.

(For those who were not aware of the situation in the Estonian economy back then, the market for construction workers was so red hot that it was not uncommon for a construction worker to earn a salary 2-3 times higher than a lawyer. We saw many of these construction workers wasting most of their hard-earned salaries at clubs like BonBon and Parlament when the weekend arrived, but we think that’s because the course on money management was given in 12th grade and they had already dropped out by then.)

We heard their BMW has new tires.

So as can be expected, the politicians rapidly appeared touting the great plans by Complus to help make a dent in unemployment.  It also appeared they were ready to help with funding:

"Timo Vaartman, adviser to the minister of social affairs, said that the company was keen to use the subsidies offered by the government to the companies that create jobs for the unemployed. "The state would subsidize the creation of these jobs," said Vaartman."

Here's a video report from ERR News about these plans, complete with the CEO of ComPlus (yes, he's French), and then-Social Minister (now Justice Minister) Hanno Pevkur praising ComPlus and the good benefits this will bring to the Estonian working man.

Now you’re probably expecting us to jump on this and be critical of the use of taxpayer money. Actually, if the money is used to train people with new marketable skills, we think that’s a good use of taxpayer money. Education provides great benefits in the long term, and improves society overall.

According to information we received from the social ministry, no taxpayer money was ever paid out for this anyway, at least from their department.

What happened? Complus went bankrupt. According to official records, Bienvenue OÜ was liquidated earlier this year (they renamed it to Bienvenue from Complus):

The bailiff even had to step in and auction off some of their old computer equipment in an attempt to recover some money.

"Help! I'm trapped in the empty ComPlus offices and I'm lonely!"

One Big Tax Scam?

Why was the bailiff auctioning off their equipment? Maybe because they owe the taxpayer over 1.3 million euros in unpaid taxes! To be more precise, Complus has a tax debt of 1,379,061 euros!

Taxpayer's money, in the hands of ComPlus

One does not build that much tax debt overnight. In fact, Complus was in the top 10 of largest tax debtors in Estonia (see Bienvenue).

What raises our eyebrows is the type of tax debt they have. Let’s have a closer look:

• Erijuhtude tulumaks 806 570,70 (Special Income Tax)
• Intress 408,61 (Interest)
• Kinnipeetud tulumaks 120 557,65 (Withheld Income Tax)
• Kogumispensionimakse  3 561,57 (Pension Tax)
• Käibemaks 194 412,85 (VAT – Value Added Tax)
• Sotsiaalmaks 227 375,00 (Social Tax)
• Töötuskindlustusmakse  26 175,05 (Unemployment Tax)

Let’s leave aside Social Tax, Unemployment Tax, and Pension Tax, as those are the taxes the employer pays for their employees. Same with withheld income tax – it’s the income tax employers withhold when they pay their employees. Those tax debts are nothing to be proud of, but they’re also not suspicious. We’ll also leave off the Interest item because it’s small.

Now let’s look at VAT. This occurs when you sell a product or service, and collect VAT from the customer, on behalf of the government.

And now the big one: Special Income Tax. This comprises over half the company’s tax debt. There are a few types of taxes that can end up in this category, including fringe benefit tax, tax on interest payments on overdue taxes, taxes on expenses not related to the business and… dividend tax.

Here’s our theory, and note it’s just a theory since we don’t have all the information:

Complus set up this whole charade as a way to skip out on taxes. The company had operations outside Estonia, so they move those profits to Estonia, take the dividends, and never pay taxes. Brilliant! Too bad the taxpayer got screwed in the process. This company basically stole money from the taxpayer's pocket, with virtually no consequences.

Why do we think this was suspicious from the start? Well all the announcements about 700 jobs came out in the spring of 2010, but according to the tax data, the company has had a tax debt since 2009.  (It makes you wonder if any of the politicians bothered to research the company at all; tax debt is public information.)

They also haven’t filed an annual report since 2009. If the company was really serious about creating 700 jobs, wouldn’t they pay their taxes every month, and file annual reports?

Of course, we could be wrong on this. Maybe in the last 4 years, they were so busy creating 700 jobs that they forgot to pay their taxes every month, forgot to file an annual report, and forgot to stop from going bankrupt.

It’s possible, but unlikely.

 

More Grand Projects

So this is why we get worried for the taxpayer when grand projects like this are announced.
We’re still waiting for the billion kroon (64 million euro) Risti Club luxury golf course housing development to open, with housing for 780 families. It’s located at least an hour away from any major employment center in Estonia, but apparently location isn’t important in real estate. Our concern is that EAS has given significant taxpayer funding in the past to golf courses around Estonia, some of which have already gone into bankruptcy, so we’re skeptical Estonia needs another golf course, unless ice golfing becomes an Olympic sport. (More on taxpayer funding of golf courses in a future post.)

Estonia's next Skype?

And then there’s the 600 million euro datacenter that we referenced earlier, from Data Valley.  It would use so much power that it’s equivalent to half of Estonia’s entire power consumption in the winter, and would require building 3 more power stations. All we can hope is that no taxpayer money is wasted on this adventure.

 

Lessons Learned

Complus was too good to be true. Numerous news sites and ministries reported their great plans to create 700 jobs, but apparently no one bothered to look into the company even the slightest bit. Just a basic search of the commercial registry would have revealed their months of unpaid taxes dating back to 2009.

The situation has only slightly improved when it comes to Data Valley and their datacenter plans. ArcticStartup did some digging into the details behind this, but there are still a lot of questions.

Maybe it’s time for the Estonian media to look into these grand projects further, instead of just rewriting press releases?