Cross-Border Web of Deceit Leaves Denmark With Huge Tax Hole

  • Fraud probe comes as Europol partnership is set to expire
  • Danes will vote on changing EU justice opt-out next month

Denmark is giving up on finding the billions of kroner it lost in one of the worst scandals ever to engulf its tax ministry.

Karsten Lauritzen, who took over as minister of taxation after June elections, says the 6.2 billion-krone ($900 million) hole caused by fraudulent dividend claims has led investigators beyond Denmark’s borders as the scope of the case grows.

“We’ve succeeded in tracking some of the money to the U.K.,” Lauritzen said in an interview in Copenhagen. “But getting that money back and proving it belongs to Denmark will be a struggle. I’m really not very optimistic.”

The Danish tax authority said in August it had paid dividend tax refunds to foreigners on shares they never held. Denmark has since suspended an arrangement allowing its biggest banks to claim dividend tax refunds on behalf of clients, but Lauritzen said the case also raises questions about cross-border police cooperation in Europe.

“This case should encourage European countries to get better at watching out for each other” so that “the financial industry is more alert when very large sums are transferred,” Lauritzen said. “This money was wired through many institutions.” Though that doesn’t mean the banks involved were complicit, it shows there’s room for “getting better at analyzing huge transactions,” he said.

Denmark’s reliance on intelligence from other EU nations comes as the country prepares to hold a vote on part of its opt-out on the bloc’s justice and home affairs policy on Dec. 3. The current agreement, which allows Denmark to draw on the Europol partnership as much as any other EU member, will expire at the end of 2015 when the pan-European police body becomes an integral part of the EU.

If Denmark chooses not to enter European police cooperation, including information-sharing, then “it will become considerably more difficult to apprehend these people,” Lauritzen said. “Then Denmark won’t even recover a dime.”

Denmark’s state prosecutor said earlier this month it had succeeded in tracing about 235 million euros ($250 million) lost in the tax fraud after coordinated actions with police in other EU countries, including the U.K.

“All we can say currently is that it will be an uphill battle and very complicated to retrieve this money,” Mikkel Thastum, a spokesman for the prosecutor’s office, said by phone on Wednesday.

The lost tax revenue also puts pressure on a generous welfare system that successive Danish governments have warned is become harder to pay for.

“The Danish tax and welfare systems were built before globalization had reached us,” Lauritzen said. “This is a society which was never constructed for globalization. That’s why we have to continuously develop our welfare model.”

Separately, the Danish tax authority has neglected to collect sufficient domestic tax debts in the period 2011 to 2014, the parliament’s audit office said in a report published Wednesday. The tax agency persistently failed to ensure that citizens and companies received equal, correct and legal treatment, according to the report.

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