Europe

Malicious companies have set up a tax evasion scheme “as a service”

Finnish tax authoritiesRecent controls have revealed many players who are doing malicious work to help investors avoid Finnish taxes. The systematic evasion by these companies is estimated to have created a tax gap of € 80 million annually in Finland from 2018 to 2021 as it is not withheld.

– The scheme has a structure that proposes a standardized and organized plan. The new conduit company will be established only for tax evasion purposes.

Both Finns and foreigners are one of the founders of the conduit company.There are some pending audit cases, which may result in additional taxes collected from the perpetrators, he says. Katja PussilaTax Administration Risk Manager.

Approximately 700 million corporate stocks have been revealed to be suspected of being repeatedly replaced among investors. The transaction clearly has no purpose other than avoiding withholding.

The increased ability to analyze large amounts of data has contributed to the recent success of tax administration work. We received information from many different sources and from authorities in other countries and compared the records.

Schemes to avoid source taxes, and cum / ex and cum / cum transactions have also caused significant tax losses in European countries. However, close cooperation with other countries and the exchange of financial information have played a key role in the success of tax management, explains Katja Pussila.

For example, in Germany and Denmark, fraudsters have filed refund applications related to stock exchanges and stocks to benefit investors and businesses around the world. In reality, the stock with dividends had only one actual owner. Shares were temporarily sold to multiple parties to increase the number of dividend recipients.

– During administrative work, we also identified a conduit company that was registered in Finland and established solely for the purpose of avoiding foreign taxes in other countries. Our role in cooperation is to convey the relevant facts to the tax authorities of the countries concerned, Katja Pussila said.

New cases may surface in the near future, as some pending audits are underway by the Finnish tax authorities.

The Tax Administration’s next administrative effort is tax withholding tax refunds.

According to the tax law in force, the beneficiary has the right to seek a refund from the Finnish tax authorities if the payer of the dividend withholds too much. Due to the need to prevent the spread of tax evasion, Finnish tax authorities are currently monitoring all operations related to tax withholding.

– The risk of increased fraudulent reimbursement activity due to reimbursement is especially important as it is becoming increasingly difficult to obtain unfounded tax incentives through procedural remedies for dividend payers, Katja Pussila said. Continues.

A new tool to ensure better management is the OECD Initiative, known as TRACE (Convention Relief and Strengthening Compliance) for Tax withholding, which has been in place since 2021. Custody chain and dividend beneficiary identities. Under the revised reporting rules, the authorized intermediary pays the tax even if no withholding is done or sufficient tax is not withheld due to the negligence of the authorized intermediary. is needed. It’s easier for tax authorities to get information, so it’s easier to focus on administrative tasks.

Fact: Finnish tax evasion company behavior

  • In general, dividend payers must withhold tax before sending dividend payments to beneficiaries residing abroad. However, fraudsters have set up companies that can receive dividends exempt from such withholding. This is made possible by the treaty between Finland and the country of the company. The new company has no business other than a workaround to temporarily hold its own shares when distributing dividends. There are tax treaties between Finland and countries such as the United Kingdom, Ireland, France and the United Arab Emirates that exempt you from receiving dividends.
  • Temporary recipients cannot use the dividend itself. Instead, you need to transfer most of the amount to the other party in the transaction. Generally, after the dividend is distributed, the corporate shares that the temporary recipient is entitled to receive the dividend will be returned to the original owner. The tax evasion benefits are then shared among the participants in the scheme.
  • This is usually based on a prior agreement made by the tax evader. Therefore, all avoiders are informed of the amount of avoidance gain they receive. The amount is not affected by stock market trends. This scheme was created without the intention of holding a company’s stock for a long period of time. Many schemes include various derivative contracts. This eliminates the risks that may arise from changes in market stock prices. Derivatives are also used to distribute unfair profits to participants. We have observed many variations of the avoidance scheme.
  • Nominee registered shareholding is involved in the scheme. After registering as a nominee, the owner’s identity will be kept secret. As a result, the official register of shareholders only shows the name of the account operator or custodian, not the name of the individual or company that actually owns the shares.

Example — Scheme for withholding

The consequences of improved management are visible: increased tax revenue from withholding tax

The case is still under investigation, but management efforts are already affecting tax revenues.

– There is a downward trend in this type of avoidance scheme. Our conclusion is that the perpetrators have noticed that Finnish authorities are taking action, says Katja Pussila.

Source: Finnish tax authorities

https://www.helsinkitimes.fi/finland/finland-news/domestic/21710-malicious-companies-have-been-revealed-that-set-up-schemes-for-tax-evasion-as-a-service.html Malicious companies have set up a tax evasion scheme “as a service”

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