In 2006-2007, Hervé Falciani took data from inside HSBC’s Swiss subsidiary, showing how HSBC helped wealthy customers dodge tax. Falciani gave the HSBC files to French authorities and they shared them with other countries, including the UK. In 2014, the German government paid around €1 million for a Mossack Fonseca leak.
Last month, Denmark has chosen to buy information on suspected tax offenders and seems to be the first country to admit that it is acquiring data from a source with access to the leaked documents. The exact sum to be paid was not revealed but it is believed to be about 9m kroner (£1m; $1.4m; €1.2m). Denmark’s tax minister, Karsten Lauritzen, said that authorities in Denmark were put in touch with the source by the tax authority of another country, something which raises the prospect of other governments also considering the option of buying the information.
Regardless of whether this comes to pass, we can infer from this development that tax authorities and other relevant government agencies are increasingly willing to cooperate with their counterparts around the globe, marking a change in the attitudes and practices of tax collectors.
Considering the potential for tax inspections, the cost is really not relevant. The leak includes details of the real or ‘beneficial’ owners behind anonymous offshore companies, such as passport scans and addresses. There are also relevant email chains between Mossack Fonseca and other lawyers and banks. The Danish tax authorities have announced that the plan is to investigate up to 600 Danes based on the acquired data.
It is important to mention that Denmark recently faced the country’s major tax fraud case, of more than €800 million, in a case that involves returns on stocks, including dividends, in Danish companies paid to foreign companies. Dividends normally carry a 27% tax in Denmark. Under double taxation agreements, however, foreign companies based abroad are entitled to a refund of part or all of the Danish tax if they have paid tax on the dividend in their country of domicile.
SKAT, the Danish tax authority, informed that the investigations showed that a large network of companies abroad have apparently applied to have their dividend taxes refunded for fictional share holdings, based on falsified documents. Part of the 12.3 billion kroner defrauded from SKAT has ended up in US pension funds, according to national broadcaster DR Nyheder. SKAT previously revealed that a total of 132 firms in the US and Malaysia were involved in the fraud scheme.
In Denmark, where residents carry one of the world’s highest tax burdens (measured in revenue as a percentage of gross domestic product) and are liable to income tax on their worldwide income, politicians have taken particular offence at the notion that some individuals have sought to circumvent the nation’s laws. A compensation from the responsible banks may be demanded, once it is proved that the government has lost revenue that can no longer be recovered as a consequence of tax evasion.
The political parties in Denmark are also contemplating to make it mandatory for banks to be insured against fines and losses from convictions in aiding tax evasion. Their opinion is that insurance companies have been very effective supervisors for policing inappropriate behaviour in other areas, as they aim to avoid losses.
For individuals implicated, the main issue will not be about taxes and penalties, as Denmark’s penal code currently punishes tax evaders with prison for as long as 18 months. In extreme and deliberate cases, the punishment can be up to eight years in jail. For the companies, the impact on the business is expected to be substantial, beyond the obvious effect of financial losses, but also regarding external confidence, company morale and increased audit costs.
Passing judgment on the merits of paying for the ‘Panama Papers’ is far from a consensus in Denmark. The proposal by the centre-right Venstre party, which rules as a minority government, is said by Danish media to have the support of the other two main parties in parliament, the centre-left Social Democrats and anti-immigration Danish People’s Party. On the other hand, the Liberal Alliance, Venstre’s former coalition partner, strongly criticised the idea through its tax spokesman, Joachim Olsen, who said it might encourage the theft of private information to sell on to the Danish authorities.
As this situation raises ethical questions regarding the receipt and use of data that was reported as stolen, Denmark’s tax minister stated that investigating further the potential tax evasion is an adequate answer to Danes that pay their taxes correctly.
People in Denmark are among the world’s most trusting of people they do not know. This high level of trust, closely intertwined with Denmark’s welfare model and non-corrupt institutions, contributes to strengthening the nation’s economy.
Trust is also an attractive factor for foreign companies wanting to do business in Denmark, as the country topped the list of 86 countries in a study of ‘trust in society’ performed by Aarhus University based on data from World Values Survey, while the four other Nordic countries also placed in the top 10. The study also notes that the perception among Danes is that only a minority is willing to defraud the tax system, and that people feel they receive something in return from the taxes they pay (for example through healthcare and children’s education).
It is very unlikely that a tax amnesty would be available for the taxpayers if it is proved that the sole purpose of the transactions was avoiding taxes in Denmark. To use a parallel with the recent tax fraud mentioned above, the two biggest political parties in Denmark’s parliament said last June that the country may need to tighten punishments for bankers and other advisers counselling clients on evading tax payments and moving money offshore to avoid taxation.
Denmark is already preparing stricter rules to prevent tax evasion, as the country’s highest administrative body overseeing tax laws ruled that the ministry can force banks to hand over lists of clients with links to Denmark and tax havens (such as Panama).