Harmful companies exposed to set up tax avoidance systems as a “service” have been uncovered

Harmful companies exposed to set up tax avoidance systems as a “service” have been uncovered

The founders of the channel companies have been both Finnish and foreign citizens. We have a number of audit cases pending that are likely to result in additional taxes being charged to authors, says Katja PussilaRisk Manager for the Tax Administration.

Transactions have been uncovered in which shares in companies of about 700 million units are suspected of having repeatedly changed hands between investors back and forth in transactions. The deals apparently have no purpose other than to evade withholding taxes.

Our increased ability to analyze large amounts of data has contributed to recent success in tax control work. We have obtained information from many different sources, including authorities in other countries, and compared the records.

Withholding tax avoidance schemes and cum / ex and cum / cum transactions have also caused large tax losses in European countries. However, our close cooperation with other countries and the exchange of tax information have played an important role in the success of tax supervision, Katja Pussila says.

In Germany and Denmark, for example, fraudsters filed applications for refunds related to securities trading and shares for the benefit of investors and companies around the world. In reality, the dividend-producing shares had only one beneficial owner. The shares had been temporarily sold to several parties to increase the number of dividend recipients.

– During the surveillance work, we have also identified channel companies registered in Finland that have been established only to avoid a foreign tax in another country. Our part in the co-operation is to pass on the relevant information to the tax authorities of the country concerned, says Katja Pussila.

Several inspections are pending in the tax administration, so new cases may emerge in the near future.

The next control action of the tax administration concerns withholding tax refunds

According to the tax provisions in force, if the dividend payer has withheld too much withholding tax, the recipient has the right to apply for a tax refund from the Tax Administration. As it is necessary to prevent the spread of tax evasion, the Tax Administration now monitors all activities related to the refund of withholding tax.

– The risk of an increase in fraudulent refunds with refunds is especially topical now that we have made it even more difficult to obtain unjustified tax benefits through the withholding tax procedure, Katja Pussila continues.

A new tool to ensure better control is the OECD initiative launched in 2021, known as the TRACE – Treaty Relief and Compliance Enhancement on withholding tax. Thanks to the TRACE model, the tax administration has better access to information on the shareholdings of nominee-registered companies. custody chains and the identity of dividend recipients. The revised reporting rules also require the authorized intermediary to pay the tax in situations where no withholding tax has been withheld or if the tax has not been sufficiently withheld due to the negligence of the authorized intermediary. As it is now easier for the tax administration to obtain information, it is also easier to target controls.

Facts: The activities of tax evasion companies in Finland

  • Generally, the withholding tax must be withheld by the payer of the dividend before the dividend payment is sent to the non-resident beneficiary. However, scammers set up a company that can receive dividends without withholding tax. This is possible due to an agreement between Finland and the company’s country. The newly established company has no business other than a tax avoidance system based on the temporary holding of the company’s shares in connection with the distribution of dividends. There are tax treaties between Finland and other countries, such as the United Kingdom, Ireland, France and the United Arab Emirates, which exempt from receiving dividends.
  • The temporary recipient cannot use the dividend money himself. Instead, it must send the greater part of the amount to the other party to the transaction. Typically, after the distribution of a dividend, the company shares that entitle the temporary dividend recipient are returned to their original owner. The profits from the tax evasion are then distributed among the participants in the scheme.
  • This is typically based on an agreement made in advance by tax evaders. Thus, each spinner has been told the amount of their round win. The amount is not affected by any stock market developments. The scheme was created with no intention of holding shares in the company for longer. Many systems contain a variety of derivative contracts. This eliminates the risks that may arise from changing stock prices in the market. Derivatives are also used to distribute unfair profits to participants. We have noticed many variations on the orbit plan.
  • Nominee-registered shareholdings are included in the plans. After the registration of the candidate, the identity of the holder becomes secret. Thus, the official shareholder register only shows the name of the account operator or custodian, not the name of the person or company that actually owns the shares.

Example – systems for tax evasion withholding tax

The results of better control are visible: an increase in withholding tax revenue

Although the cases are still under investigation, controls are already having an impact on tax revenues.

Harmful companies exposed to set up tax avoidance systems as a "service" have been uncovered

– We see a declining trend in this type of circulation. Our conclusion is that the perpetrators have noticed that the Finnish authorities are taking action, says Katja Pussila.

Source: Tax Administration

Source: The Nordic Page

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