Malicious companies evade €80m tax per year

The Finnish Tax Administration’s recent control action revealed many players that operate a malicious activity to enable investors evade Finnish taxes, said an official press release on Wednesday.

The authority estimated that systematic evasion by these companies has resulted in an 80-million-euro tax gap for Finland in 2018 to 2021 every year because taxes have not been withheld at source.

“The schemes have had structures that suggest standardised, organised planning: new conduit companies are established only for the purpose of tax evasion. Both Finnish and foreign citizens have been among the founders of the conduit companies. We have a number of pending audit cases that will probably result in added taxes to be collected from the perpetrators,” said Katja Pussila, Risk Manager at the Tax Administration.

Deals have been uncovered where some 700 million units of corporate shares are suspected to have changed hands repeatedly between investors in back-and-forth trades. The deals obviously have no purpose other than evasion of source taxes.

Schemes for avoiding source taxes, and cum/ex transactions and cum/cum transactions have caused major tax losses in European countries as well.

However, tax administration´s close cooperation with other countries and exchange of fiscal information have played an important role in the success of tax control, Pussila said.

For example, in Germany and Denmark, scammers submitted refund applications relating to securities trading and shares, to benefit investors and companies around the world. In reality, the dividend-bearing shares had only one real owner. The shares had been sold to several parties on a temporary basis to make the number of dividend recipients grow.

“During the control effort, we also have identified conduit companies registered in Finland that have been established only for the purpose of avoiding a foreign tax in another country. Our part in the cooperation is to pass the relevant facts on to the tax authorities of the country concerned,” Pussila added.

According to tax rules in force, if the payer of dividends has withheld too much tax at source, the beneficiary is entitled to ask the Finnish Tax Administration for refund. Because it is necessary to prevent tax evasion from spreading, the Finnish Tax Administration now watches over all operations connected to refunds of tax at source.

“The risk of increased fraudulent refund activity with refunds is particularly relevant now that we have made it increasingly difficult to gain unfounded tax benefits through relief at source procedure of dividend payments,” Pussila said.