The Ryanair Contactor Employment Model
Status (15 Aug 2016)
In the last few weeks, numerous pilot’s residences have been raided by the German State Prosecutors Office - Koblenz. Following the raids, VC and RPG worked very closely together to try and get an overview of the situation and to advise the pilots how to protect themselves and have their personal situation clarified.
The Prosecutor’s search warrant has accused the pilots of intentionally creating a fraudulent tax scheme together with various partners. From media reports in the UK we understand that Brookfield´s offices were searched and subsequently Brookfield has asked pilots for personal tax information.
Since January, some pilots have become aware of a change in the way that their accountants are handling their taxes, i.e. suddenly a German Pay slip in addition to the Irish one. Many of the pilots whose apartments were raided were hired through the agency Storm McGinley and have never had any contact with Brookfield. However, during some of the raids, the pilots were shown copies of documents relating to their contracts that they had never seen before and which appeared to suggest that they had some link to Brookfield. This raises the first question, how did the State Prosecutor get these documents and why have the pilots never seem them? Who is supplying material to the State Prosecutor and not informing the pilots? The Accountants, the Brokers (Brookfield/ McGinley) or Ryanair? At least one German Tax Accountants Offices were also raided.
Ryanair, in both press statements and internal documents, has stated that they are cooperating with the State Prosecutors Office. McGinley has also stated publicly that they had cooperated with the German authorities, but neither disclosed what form that cooperation has taken. Ryanair has claimed that they have informed their contract partners to ensure that pilots are operating legally, but other countries such as Norway consider Ryanair to be the pilots’ employer under this employment model. It appears that the pilots are the last ones being given full and transparent information about their employment by Ryanair, McGinley or Brookfield.
To understand the depth of the fraud scandal, a short history lesson may help. Brookfield, together with Liam McNamara Accountants, operated a “self-employment” scheme in which pilots were treated as ‘sole traders’ under the Irish tax system. This was modified in 2009 to begin the creation of Irish Limited companies with the pilots as directors, as a means of supplying contract pilots to Ryanair through a crewing agency. It was stated then that this arrangement was in compliance with Irish Tax regulations.
On the 28th of June 2012 the EU-wide social insurance homebase rule was implemented. To support this the A1/E101 procedures were created. This meant that you should pay social charges where you were working. The German Government, through the GKV, has always considered the pilots to be bogusly self-employed and required that the social insurance for both the employee and employer side be paid. The pilots who complied with this have, as a result, both the employee and employer social taxes deducted from their gross pay. The Irish Income Tax and Universal Social Charge (USC) are also deducted, resulting in overall deductions of up to 70%. Pilots who were not paying the full social charge as calculated by the German authorities were told by their accountants that this was due to legitimate deductions of business expenses as they are self-employed. In other words, their social charges were calculated on their pay minus their business expenses, which is not allowed under the German system!
Pilots, during their training, do not receive courses in areas of social insurance, national income tax or international tax law. Pilots, understandably, believed that their accountants and brokers made sure that they complied with all relevant national income tax and social charges regulations. The accountants charge up to 3% of the pilot’s gross salary for this service. It is not clear what advice if any, the accountants received from the German authorities before they made the relevant deductions.
VC & RPG
Following the raids, VC and RPG collected data and contacted the appropriate legal specialists for help, on behalf of members who sought assistance. During the first weekend, the VC Board agreed upon an unprecedented and very comprehensive legal support package for all Ryanair Pilots who are willing to join VC now! This offer will expire on Aug 31, 2016.
VC & RPG conducted a series of pilot’s meetings at some of the affected bases and have been working closely together to distribute information and create awareness of the situation. As the legal situation needs to be clarified under German Law, VC has taken the lead in organizing the legal advice.
The Main Message
When you are accused of tax fraud in Germany, you must become active in your own case and defense. If you were a contract pilot in Germany, at any time you must take immediate action to protect yourself. For pilots who have had their residences raided, you should get help from a criminal lawyer and get your message to the State Attorney. We have already seen numerous attempts from other involved parties to push the blame solely on the pilots. Reading the Ryanair Press and internal Statements shows this very clearly.
The State Prosecutor has numerous documents that neither Ryanair nor Brookfield should have had access to. These documents should only have been available to the accountants and the pilots. This raises an important question; who are the accountants really working for and who have they shared pilots’ private and confidential information with? However, the possession of these documents by the prosecutor may help to prove that pilots were not actually self-employed at all.
Both VC & RPG have been pushing the message to the pilots that the accusations made against pilots are very serious and can cause a loss of your pilot’s license and your livelihood!
For the pilots who have not been raided but work under the model, a fraud is suspected and the question is how do you prove your innocence? This may prove to be very complex. One group we represent can show (and we have documents to prove this), that in numerous cases employer social taxes were deducted but have never been paid into the German Social System. Pilots, and the German authorities, must reasonably ask where is this money? Pay slips for the same months, issued by both the Irish and German accountants differ greatly. This suggests that the Irish and German authorities are being informed of different income for the same pilots. In other cases, only German pay slips with salaries that cannot be explained, are being received by pilots.
In all of the above case, Pilots who are in VC are in contact with the appropriate legal representative to work with the appropriate authorities to get the situation cleared up.
How are the pilots reacting?
The pilots who are attending either our meetings or with whom we have email contact, all want one thing, to be legal and be able to exercise their profession without fear of criminal prosecution. This includes paying their taxes and social charges as well as filing the proper paper work.
Pilots caught up in this scandal feel abandoned by Ryanair. Many applied directly to join Ryanair and were automatically forwarded to Brookfield / McGinley where they had the choice of either “self-employment” or to remain unemployed. The statements in the press about Ryanair cooperating with the authorities and that they are not part of the investigation has caused a lot of anger among pilots. Ryanair is mentioned at least 33 times in the search warrants, but is not involved? Brookfield is more often mentioned but only a few times more! A feature in the Irish Sunday Times (24th July 2106) quotes Mr. Liam McNamara (of McNamara & Associates) saying - “We organised some of the structures for Ryanair going back to the very beginning [in 2009]”. He also added - “There is a strong possibility the structures were changed. At the time we put them together they were underpinned by a tax barrister’s opinion. It had also been approved by KPMG at the time, Ryanair’s auditors”. This public statement by Mr. McNamara clearly suggests that Ryanair was the true architect of this whole employment model.
The German Government believes the pilots willingly participated in building these employment structures and engaged in fraud. To correct this perception, pilots must react quickly and clearly.
Unfortunately, many pilots have expressed a high level of fear that by contacting the authorities and thereby actively proving their innocence, that there could be consequences from Ryanair. Surprisingly, some have even gone so far as to state that they would rather pay fines and all the taxes (employee and employer) to avoid drawing attention to themselves, even for a scheme they had no involvement in establishing.
What does VC recommend and what is VC doing?
The pilots who become VC members receive extensive legal support, with the primary goal of ensuring that everyone understands that the pilots are victims in this whole scheme. The State Prosecutor will need further documents or information to find the real perpetrators of the alleged fraud. The lawyers, which VC has arranged, will assist the pilots in identifying and providing this information, ensuring that the whole story is told as accurately as possible.
We recommend to all the pilots: ensure that you are legal; remain legal; and protect yourself. To achieve this, we have produced this guide, the guide is being constantly updated and can be found on VC´s & RPGs Homepage. Personal recommendations and support are being provided to VC Members.
VC is actively engaged with the German and EU Parliamentarians, and various Governmental Organizations, to get help for the affected pilots, to try to find solutions for the future to prevent such occurrences. We know that aviation is not the only profession affected and will work with all interested parties to find solutions. VC will use its extensive network to share as much information as possible, and to provide additional instructions to VC and RPG members when appropriate and useful
What about RPG?
During the last years, the RPG has been actively lobbying the EU Parliament and in contact with various Irish Authorities, as Ryanair´s headquarters and National Aviation Authority are based in Ireland.
On receiving the first indications of the unfolding interviews or raids on pilot’s residences, a letter was sent to the Irish CAA expressing concern about pilots flying in these circumstances. The RPG was assured that all affected pilots were being told that they need not fly if they felt that the stress could affect their performance. Unfortunately, we have no indications that this message made it to the normal line pilot. The immediate message from Ryanair was to tell pilots to ensure that you are legal. It is not clear what such a message means!
VC & RPG will continue to support their members. We recommend all Ryanair/ex Ryanair pilots who were based in Germany in the last 10 years and worked or are working on a Brookfield or McGinley contract, down load the updated information from RPGs and VCs websites.
If you are based in Germany, join VC for the full legal protection, you can become a member of RPG at no extra cost. Make sure that you have done all you can to protect yourself. If you are based outside of Germany and discrepancies are suspected, get in touch with the RPG initially and ask for help. The RPG will liaise with the local MA to put you in contact with the appropriate authorities to get the correct advice. Always join your local pilots association, keep both RPG is kept informed.
The national MAs have extensive local legal expertise and knowledge but the RPG is the one with the big picture.
If Ryanair really wants to cooperate and ensure that their crews are not subject to police raids and accusations of fraud, they need to give them real legal employment contracts, and assure them that Ryanair will accept full responsibility for the employment arrangements they put in place to engage pilots in Germany.
The pilots’ associations, the authorities and the elected members of parliament, both National and European, as well as the EU Commission, need to ensure that pilots are not put in positions of being unwilling partners to a fraud and “bogus self-employment” now or in the future, in the pilot profession or in any other profession.
We need both short and long term solutions at national and EU levels, only together with the Ryanair Pilots can we find a solution. These searches were focused on the Ryanair Bogus Self Employment model in Germany, but there are many other countries with similar laws, where these models are being practiced both by Ryanair and other airlines.
There are numerous rumors being spread, either intentionally or not. Rumors such as, the pilot is liable for social taxed only for the last three months, there has been a change in the “homebase” regulation for German based Ryanair Pilots, etc. So far, all of the rumors have proven false and misleading, if you want the telephone numbers to verify these rumors yourselves, we are happy to provide the contact details to the appropriate government agencies.