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Danish Government buys “Panama Papers” information: what does it mean for compliance?

13 Sep 10:00 by Matt Walters

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Last week, the news broke that the Danish government has taken steps to acquire information linked to the “Panama papers” leak for a sum reported to be up to £1 million. The information is alleged to contain confidential information regarding the tax arrangements of several hundred Danish individuals or companies. Following the purchase of the data by the Danish tax authority, SKAT, investigators are expected to be in a strong position to review the individuals involved and apply any laws, and legal penalties or sanctions, if necessary.

Intense media coverage of the “Panama Papers” leak and the alleged involvement of a whole host of political, and other high net-worth individuals, had significant implications in politics and government, even leading to the resignation of the Icelandic PM. It is likely that this latest story will attract similar levels of media scrutiny, not to mention commentary on the most successful approaches to enforcement of tax law.

Governments are duty bound to enforce tax law and pursue offenders and we have seen a variety of approaches and tactics used in recent years to ensure compliance with tax legislation. While the Danish government has looked to purchase information, the UK government signed a deal with Switzerland in 2012 that “it will not actively seek to acquire customer data stolen from Swiss banks”. There are clearly a whole host of tactics at the disposal of governments in tax enforcement. However, there is the possibility that the use of the certain tactics may be counter-productive or may put pressure on diplomatic relationships between countries or institutions.

Perhaps most pertinent to this case is the fear that hackers will be encouraged to pursue efforts against private businesses in the hope that the information can be sold on at a profit to the governments and tax authorities. This may well undermine the efforts of financial companies to protect the interests of their clients, not to mention implying that such companies are not capable of acting in partnership with regulators to ensure compliance. Enhanced transparency should be welcomed by compliant operators, but an up-tick in attacks from would-be hackers may have a detrimental effect on the ability of companies to survive.

While the Danes are reeling from the latest discoveries, it seems likely that disclosures and deals of these kind are set to increase given the considerable interest from the media and the general public, right across Europe. But it remains to be seen if the approach taken by the Danish authorities will be sufficient to deter illegal behaviour and promote compliance in global tax affairs.