Denmark Needs to Fix a $4 Billion Tax Fraud

  • Government mulls the deployment of private debt collectors
  • Tax minister says better system would make tax cuts easier

About two weeks after Denmark revealed it had lost as much as $4 billion in taxes through a combination of fraud and mismanagement, the minister in charge of revenue collection says that figure may need to be revised even higher.

Speaking to parliament on Thursday, Tax Minister Karsten Lauritzen said he “can’t rule out” that losses might be bigger than the most recent public estimates indicate. It would mark the latest in a string of revisions over the past year, in which Danes learned that losses initially thought to be less than $1 billion somehow ended up being about four times as big.

The embarrassment caused by the tax fraud, which spans about a decade of successive administrations, has prompted Lauritzen to consider debt collection methods not usually associated with Scandinavian governments. Denmark has long had one of the world’s highest tax burdens -- government revenue as a percentage of gross domestic product -- and a well-functioning tax model is essential to maintaining its fabled welfare system.

“We’re entertaining new ideas, considering more new measures,” Lauritzen told Bloomberg.

Danish officials are now prepared to pay anonymous sources for evidence from the same database that generated the Panama Papers. Jim Soerensen, a director at Denmark’s Tax Authority, says the first batch of clues obtained using this method is expected by the end of the month.

“We don’t know whether the information was obtained legally,” Soerensen said. “If we find something that could be of interest to the Economic Crimes Squad, we will obviously inform them.”

Going Private

Lauritzen said his ministry is also looking into the option of using private debt collectors.

He says “one reason things have gone wrong is that a different set of rules applies to collecting public debt than applies to the collection of private sector debts.” The size of the challenge means the government is “open to discussing private debt collection to help resolve this huge pile of debt,” he said.

Danes don’t have the same access to bankruptcy protection that Americans have and debt collection companies can tap private bank accounts and even seize paychecks. In contrast, government debt collection has so far had to live up to requirements that seek to ensure a debtor is left with enough money to cover basic living needs. Social benefits and other welfare payments are off limits.

Lauritzen says he would expect private debt collectors used by the government to adhere to the same rules that apply in public debt collection. “I’ll have a constructive approach to this,” he said. The government is also looking into commissioning an external investigation into the fraud, according to Ritzau.

Missing Dividend

The minister is exploring new avenues two weeks after unveiling a package of reforms that included 7 billion kroner ($1.06 billion) in additional spending to improve revenue collection. The plan also entailed hiring about 2,000 more employees.

The pledges followed revelations in August that Denmark lost 12.3 billion kroner on tax dividend rebates to offshore recipients. The government is also missing about 14 billion kroner in taxes that Danes owe. Together, those two figures represent about 3 percent of Denmark’s total tax revenue in 2015.

Lauritzen said any success his ministry has in reclaiming Denmark’s tax debts will help the government achieve its goal of cutting taxes.

“Obviously, one of the reasons I want a better functioning tax collection system is that it will make it easier to cut taxes in the future,” he told Bloomberg. “There’ll be more money available for that.”

But the policy might not be a vote winner. A poll published last month by Altinget showed 60 percent of Danes are opposed to tax cuts, while only 25 percent would back such steps. Some 15 percent are undecided. A proposal to cut income and corporate taxes is a key plank in the government’s 2025 economic plan, which is due to be debated through the autumn.

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