Immigration Gap - Home Affairs Committee Contents


Memorandum submitted by Gary Burgess

SUMMARY

1.   Summary

    — The tier 2 intra-company transfer route is not the same as the GATS intra-corporate transfer, and has much lower requirements. — There are several heavy users of the tier 2 intra company transfer visa system; they use these visas to bring in thousands of workers every year; and transferees make up the majority of their UK workforces eg Infosys, Wipro and TCS. — The US has recently introduced laws that specifically target companies that use employer sponsored visas to provide the majority of their workforce, and the chairman of the US Senate immigration subcommittee has specifically named Infosys, Wipro and TCS as abusers of the visa system. — India has a cap on foreign workers, but criticizes the UK for introducing one.

    — Tier 2 intra-company transfer visas are heavily open to abuse as the requirements are so low and the policing non-existent.

    — Many tier 2 intra-company transferees pay little or no income tax in the UK and are effectively subsidised by the UK taxpayer.

    — ICT migrant workers can be underpaid and their employers' may be keeping their tax refunds.

    — Employers claim they have difficulty finding UK workers when the opposite is true.

INTRODUCTION

  2.  I am submitting this memo as an individual, and not as the representative of any organisation.

3.  My submission concerns the intra-company transfer route of tier 2 under the PBS. The MAC report on "Tier 2 and Dependants", found that two thirds of intra company transferees were Indian IT workers. A large proportion of those are sponsored by companies such as TCS, Wipro, Infosys, Cognizant, Mastek, Tech Mahindra and Mahindra Satyam. These companies' UK workforces mainly consist of thousands of intra-company transferees.

  4.  I became interested in the intra-company transfer route just over a year ago when friends and colleagues were displaced and out of work as a direct result of companies using this route to bring in underpaid workers from outside the EEA.

  5.  The more I have uncovered about the system and how it is abused, the more astounded I became. The tax side particularly caught my attention as it appears that intra-company transferees pay little income tax in the UK, yet consume public services like the NHS and schools.

WHETHER AND HOW INTRA-COMPANY TRANSFERS SHOULD BE INCLUDED IN A CAP

Tier 2 ICT route is not the same as ICT GATS and FTA commitments

  6.  The UK must allow companies to move certain personnel between establishments in different countries under the EU commitments to the World Trade Organisation's General Agreement on Trade in Services (GATS), and also under various bilateral free trade agreements. Intra-corporate transfers are covered in these agreements and I have included the text below:

    (i) the temporary presence, as intra-corporate transferee,* of natural persons in the following categories, provided that the service supplier is a juridical person and that the persons concerned have been employed by it or have been partners in it (other than as majority shareholders), for at least the year immediately preceding such movement:

    (a) Persons working in a senior position within a juridical person, who primarily direct the management of the establishment, receiving general supervision or direction principally from the board of directors or stockholders of the business or their equivalent, including:

    — directing the establishment or a department or sub-division of the establishment;

    — supervising and controlling the work of other supervisory, professional or managerial employees;

    — having the authority personally to hire and fire or recommend hiring, firing or other personnel actions.

(b) Persons working within a juridical person who possess uncommon knowledge essential to the establishment's service, research equipment, techniques or management. In assessing such knowledge, account will be taken not only of knowledge specific to the establishment, but also of whether the person has a high level of qualification referring to a type of work or trade requiring specific technical knowledge, including membership of an accredited profession.

  7.  Intra-corporate transferees should be senior managers who report to the board or specialists who have essential uncommon knowledge. Research, by experts such as Professor John Salt, and the experience of those working with intra-company transfer IT workers suggests that the most intra-company transfer IT workers are in the UK to use standard, readily available IT skills, and do not possess or do not need any uncommon or proprietary knowledge. As many are sent to work at clients' sites, they are more likely to be here to acquire proprietary knowledge from the client.

  8.  The tier 2 intra-company transfer route is one of the easiest routes to satisfy under the Point Based System and there is no requirement for the transferee to be a senior manager or have uncommon knowledge. The "1 year of previous experience" requirement was recently added.

  9.  The GATS intra-corporate route was intended to allow companies to bring in a small number of essential staff, and not a workforce of thousands. The tier 2 intra-company transfer route is not the same, and some companies use it to bring in thousands of workers every year.

  10.  There is no reason why the tier 2 intra-company transfer route should not be included in the cap while it remains in its current form. However, there may be a need for a proper GATS intra-corporate visa to satisfy the UK and EU commitments.

Recent Developments in the USA

  11.  On 13 August 2010, President Obama signed the U.S. Border Security Bill. The Bill had been passed unanimously in the US Senate a week earlier. The most controversial part of the Bill was the large increase in charges for employer sponsored visas (H-1B and LI) for companies that have more than half their workforce on such visas. Roughly speaking, H-1B is equivalent to tier 2 general and L1 is equivalent to tier 2 ICT. Senator Schumer (chairman of the senate immigration subcommittee) singled out companies like Infosys:

    The emergency border funds will be paid for by assessing fees on foreign companies known as chop shops that outsource good, high-paying American technology jobs to lower wage, temporary immigrant workers from other countries. These are companies such as Infosys.

  12.  Senator Schumer also described these companies as "multinational temp agencies", which was a fairly accurate summary. Surprisingly, outsourcing companies like Infosys and TCS actually generate half their revenue from workers that are sent onshore/onsite (ie to client work sites) where they are charged out per day and work on client teams. Staff augmentation is a major part of their business model.

India's Employment Visa policy

  13.  The biggest users of tier 2 ICT visas tend to use Indian workers, and the Indian government actively opposes any restrictions on Indian professionals working in other countries. However India itself has a restrictive employment visa policy (see the Indian Ministry of Home Affairs website):

http://www.mha.nic.in/pdfs/work_visa_faq.pdf

  14.  In summary, India has a cap on companies employing foreign professional workers of 1% of their workforce (to a maximum of 20 foreigners). IT workers are not included in the cap provided they are paid at least $25,000, which is 30 times the average Indian salary and twice the average Indian IT worker's salary. Indian missions abroad also have the right to deny an employment visa if they think a qualified Indian worker would be available. India has a zero cap on employment visas for non-professional workers.

The going rate, allowances, taxes, underpayments and UKBA policing

  15.  If the UK visa system worked as we are told it should, then I and many others would not have an issue with it. However it is heavily abused to the detriment of UK workers, companies that employ UK workers, UK taxpayers, and even migrant workers. Intra company transfer visas are particularly abused by some businesses because the requirements are so low and there is so little checking. For instance, there is no requirement to check or prove that no one already in the UK could do the work, and the salary does not need to be paid in the UK. It is very easy to undercut UK workers and underpay migrant workers using intra company transfer visas.

  16.  The going rate/appropriate rate set by the UKBA is usually the 25th percentile salary for the occupation. Therefore it is significantly less than what an average UK worker in the same occupation would be paid, and incongruous with their exceptional and essential skills. It has not been uncommon for Indian IT workers on tier 2 ICT visas to switch to tier 1 visas in the UK and move jobs. They often earn significantly more and switch from being net beneficiaries of the UK tax system to net contributors.

  17.  Tax free allowances (eg to cover temporary place of work expenses for the first 2 years) are counted towards the migrant's salary, so their actual taxable salary in the UK is usually small. This also means employers avoid employer National Insurance contributions (and under HMRC rules transferees do not have to pay national insurance for the first year anyway). The MAC report on "Tier 2 and dependants" said this could be used to undercut UK workers and recommended that the use of allowances should be reviewed. The UKBA policy document released in Match 2010 said they recognised the problem but would take no action:

    The MAC recommended that allowances be scaled down when calculating points for prospective earnings, to prevent the tax system being used to subsidise migrant labour and undercut pay for resident workers...

    we do not propose to make any changes relating to allowances from 6 April 2010. Scaling down allowances could place a heavy burden on businesses that use allowances for legitimate contractual reasons and not to undercut ...

  18.  Allowances should not be counted towards reaching the minimum required salary. They are businesses expenses and not remuneration, hence HMRC does not tax them. The expenses of working away from home are not additional expenses, uniquely incurred by intra company transfers. When a UK employee is sent to another office or a client site then allowances are paid on top of their UK salary, and this is part and parcel of doing business. To protect migrant workers from being underpaid and UK workers from being undercut, it is important that companies are required to pay allowances on top of a proper UK salary.

  19.  The low tax status of intra company transferees also means that many cost more to UK public services than they pay in taxes. They and their employers are subsidised by the UK tax system. However, there also seems to be evidence that some employers do not pass on the benefit of tax dispensations and refunds to their ICT employees eg they force their employees to sign over any tax rebates.

  20.  Alternatively employers exaggerate salaries when they apply for visas/Certificates of Sponsorship and, in March, the UKBA decided to specifically say that it was against the rules to "use any tax exemptions that apply to multiply upwards net salaries and allowances to an artificial figure", as there had been so many queries over this practice. Based on what I have been told by ICTs, this practice of underpaying migrant workers appears to be common among some of the biggest users of the tier 2 intra company transfer system.

  21.  It is probably best to use a real example to show the problems with the system, so I have included real details and information provided by an ex intra company transferee as additional documentation with this memo. From this additional documentation you should be able to see that:

    — the work permit salary is not the same as what is actually paid, and the HR department clearly believes this is normal;

    — the substantial tax free allowance means the actual taxable salary and income tax paid is very low; and

— there appears to be no proper policing of the system and, as can be seen, this issue has been reported to the UKBA and received no response.

"problems recruiting staff in the UK"

  22.  Senior executives seem quick to say that they have problems recruiting staff in the UK, when in fact the opposite is true. In May, Wipro's new European head, Jeffrey Heenan Jalil, told Karl Flinders of ComputerWeekly that Wipro were struggling to recruit staff in Europe. Many of the European jobs advertised on Wipro's internet site were in the UK (about 100). In August, Karl Flinders asked Wipro why, after over two months waiting, job applicants were still stuck in the first part of the Wipro's recruitment ("to screen"). Wipro HR responded that they had received a large number of applications and had a large backlog. Clearly their problem recruiting in the UK was nothing to do with finding skilled workers in the UK. http://www.computerweekly.com/blogs/inside-outsourcing/2010/08/if-wipro-wants-50-of-european-staff-to-be-locals-it-had-better-get-its-act-together.html

RECOMMENDATIONS

23.   Recommendations

    — The intra company transfer route should be included in the cap. Alternatively the "uncommon knowledge" requirement should be fully enforced or a minimum UK salary of £50,000 should be introduced to discourage abuse. — The UKBA going/appropriate rate salary should be at least the average salary for the occupation and it should be paid and taxable in the UK (otherwise there should be a charge equal to the average income tax paid by a UK worker to reflect a fair contribution for UK services). — There should be effective and transparent policing of the system so that UK workers are not undercut and migrant workers are not underpaid. If necessary visa costs should be increased to pay for additional UKBA staff.

    — There should be a thorough investigation of employers underpaying and keeping tax rebates from intra company transfer employees. Guilty employers should be required to pay any misappropriated money back to their migrant employees.

August 2010





 
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