Biggest Tax Scandal in Denmark Expanding Further

November 5, 2010 International Tax CooperationTax HavensTaxation in Denmark

Biggest Tax Scandal in DenmarkInvestigations have continued into Denmark’s recent tax scandal, revealing that over the last five years, transactions between Danes and tax havens across the world could be as high as DKK 4 trillion, four times more than originally estimated.

As we reported earlier, the Tax Ministry of Denmark has launched Money Transfer, an investigation into the exorbitant number of transactions carried out between Danish taxpayers and the 55 countries which are considered by Danish tax authorities to be tax havens. The Ministry’s preliminary estimates placed the total of all the transactions at approximately DKK 1 trillion (approx. USD 190 billion), over the last five years. However, recent comments from the Minister of Taxation Troels Lund Poulsen revealed that further investigations uncovered that the transfer total could be as high as DKK 4 billion (approx. USD 762 billion). The Tax Ministry currently estimates that 10 000 Danish individuals and business entities have been involved in suspicious financial transactions and transfers with tax havens.

The Tax Ministry of Denmark has so far opted not to reveal the exact number of tax evasion suspects, and will continue to scour the data for further signs of misconduct. According to taxation experts, in the present circumstances there are several indicators that the tax investigators will seek, while searching for signs of illicit behavior. At the initial stage of the investigation the authorities will look for evidence of arrangements which resemble conduit companies, or businesses operating under “gray directorships” by non-Danish residents. This step should wean out companies which operate with tax haven jurisdictions for legitimate purposes. The data will once again be inspected for further signs of tax evasion: contrived or obviously artificial operations; intricate arrangements and inter-group transactions that are not related to any legitimate commercial activity; operations with a disproportionate levels of financial risk coupled with exorbitantly high tax benefits will also be investigated; schemes with circular fund movements; unwarranted use of loans, debits, debit obligations and agent’s arrangements; and the commercial use of of charities and foundations.

The sheer scale of potential tax evasion committed by Danes has led the Government to delay its upcoming tax amnesty program. It was previously announced that an amnesty would be implemented at the beginning of 2011, which would grant Danish taxpayers reduced penalties and immunity from criminal prosecution, if they came forward with details of their undeclared offshore assets. However, on November 3rd Troels Lund Poulsen stated that the amnesty would be delayed until Danish authorities had concluded the majority of their investigations and audits, probably in early 2012. In Denmark, intentional and concentrated tax evasion can lead to 8 years imprisonment and penalties of twice the unpaid tax liability.

Denmark currently holds 24 separate Tax Information Exchange Agreements with countries around the world, which has led analysts to predict that the scale and depth of investigated data will only increase over time. Some have even gone so far as to say that if Danish law enforcement agencies opt to share its investigation results with other countries, Denmark’s biggest tax scandal could easily turn into a global-scale investigation.

Photo by davidz