Project money transfer - Denmark seeks taxual healing

Recently, we blogged the story of Scandinavian countries each signing 23 Tax Information Exchange Agreements (TIEAs) with other jurisdictions (under the fatally flawed OECD standards,) which raised a number of interesting questions posed by TJN correspondents, including this:

"Instead of stuffing the ballots, how about the Scandis stuffing the tax havens with information requests? I remember it took only 10 or so information requests for the Jersey police to call in the cavalry of the London Met Police to sort out the back log, and what if the scandinavians would make a 100 or a 10,000 or 100,000 information requests to a selected number of tax havens, all via official channels, and with the support of an extensive diplomatic network."

An interesting question, indeed. Well, now Martin Brehm Christensen (no relation of TJN's director John Christensen) has sent us the following, under the guest blogger format:

"The Danish Tax and Customs Administration SKAT has just announced that a sum amounting to 1000 billion Danish kroner (about 150 billion Euros) has been transferred back and forth between Denmark and approx 50 secrecy jurisdiction – it is “Potentially the biggest Danish tax scandal ever…” according to some journalists. Through the Project Money Transfer Danish tax authorities SKAT got access to banking data from the 20 biggest Danish banks regarding approx 5 million transactions over the past five years.

Project Money Transfer is presented as a successor to the Project Credit Card where Danish Visa, Mastercard, Eurocard and American Express transactions covering the period 2001- 2006 where scrutinised and hundreds of millions Danish kroner of additional revenue obtained.

As the project was perceived to have been successful, the more extensive Project Money Transfer was initiated in May 2009. The Danish government hasn’t presented it as being related to the 23 TIEAs (Tax Information Exchange Agreements) that Denmark has signed with tax havens since 2007 (along with other Nordic Countries). The Danish minister of taxation Troels Lund Poulsen has announced that the first step, with new data from Project Money Transfer available, is to ask citizens with suspicious transactions to explain and account for them. No announcements have been made regarding bilateral information requests in this connection.

But the project presents an exciting opportunity to try out the TIEAs (of which six are ratified already): One could hope and expect that the Danish tax authorities, SKAT, will use the banking data to submit hundreds or thousands of information requests. Susanne Reinholdt, head of the SKAT department on economic crime, admits that Denmark might risk that some secrecy jurisdictions like Switzerland won’t comply on their TIEA commitments. But if the TIEAs proove to be shams, Denmark could introduce sanctions, e.g. exclude some tax havens from the SWIFT system (see original article, or the rough internet translation here.)

The Danish tax haven list

The official policy of the Danish government is to keep the Danish list of about 50 countries as a classified internal document -- though the list, which includes England, Luxembourg and Autstria, has nevertheless been published in this newspaper article. Unlike the Brazilian list (which we blogged earlier), the criteria for the classification of tax havens have not been revealed, and the contents of the list itself have not even been officially confirmed. The minister of taxation comments that “nobody should be offended” and some countries might be included only because of their potential role as transit countries.

The timing of Project Money Transfer matches with an amnesty policy for tax evaders issued earlier this year. During the amnesty period, which is limited to the year 2011, tax evaders will be charged only half the fines and be exempted from imprisonment if they turn themselves in. One could imagine that Project Money Transfer, together with all the new TIEAs, is adding to tax evaders’ apprehensions. The Minister of Taxation has commented (rough translation here) that those who are uncovered by Project Money Transfer won’t have their sentence relieved even if they turn themselves in. The amnesty policy is backed up by a broad majority in parliament. They refer to the success of a similar amnesty policy in Norway which raised 1.8 billion (approx 200m Euros) in additional revenue from 410 tax evaders turning themselves in.

Obviously it is still too early to speculate on the full outcome of the Project Money Transfer. It adds positively to other policy debates in Denmark, e.g. harder rules regarding the role of tax accountants; and a reconsideration of planned spending cuts reducing the number of employees at the tax agency from 8,200 to 6,400.

The most interesting effect may be in the international arena. The Permanent Secretary of taxation Peter Loft presented the Danish initiative at a two day OECD meeting in Istanbul the 15th and 16th of September 2010. The participating countries showed great interest and support to Denmark says Peter Loft. He expects that the idea soon will be copied by several countries.

TJN: Well, there is an interesting set of developments and possibilities. (You can find some Danish facts and figures here.)

Martin Brehm Christensen is TJN's Country Co-ordinator in Denmark, and a graduate student of International Political Economy at the University of Copenhagen and at the University of Wisconsin-Madison.