The government called a press conference yesterday to announce that an investigation has been launched into large-scale tax evasion by the [old] Icelandic banks, which apparently had their own “black economy”. Over 1,000 cases are being investigated as it is suspected that hundreds of billions of ISK were funneled past tax authorities.
The alleged tax evasion extended to derivatives, shares, foreign currency, foreign services, loan write-offs and payments of private costs for owners and directors. Other cases being investigated concern share option agreements, suspension of liability, goodwill and leveraged takeovers.
According to RÚV, the investigation focuses on [large] customers of the banks, directors, employees, companies that owned large shares in the banks, and others.
Apparently, this is nothing new in the banking sector. According to Jóhanna [PM], Alþingi [Iceland's parliament] has, in the past 10-15 years, received two separate reports about these sorts of offenses. Five years ago tax and customs authorities estimated that tax evasion in the banking sector amounted to some ISK 40 billion. Yet the Independence Party did not see reason to crack down on those evasions.
Clearly that is about to change. Perhaps this shows us what the government is capable of when it is not being consumed whole by THE BLOB Icesave — which appears to be temporarily on hold, for better or for worse.
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Unfortunately this is more an example of just how poor is our journalists understanding of matters financial than anything new. The issue is who is responsible for withholding tax on derivative and other trading profits when the bank’s counterparty was a firm of professional investors i.e. the client or the bank. The tax authorities say the bank while the bank says it is the clients job to declare the profit. The Banks and the Icelandic tax authorities have been fighting over this issue for years and it is just something that needs to be settled by the courts.
In all probability there was no tax evasion as the bank’s clients will have declared the income to the relevant authorities.
Ari – it’s not the journalists who are launching an investigation, it’s the government. While I take your point – that there is a dire lack of qualified financial journalists in this country – I don’t see what this has to do with them.
Alda – maybe I was not clear, sorry. My point was that the issue is of much less importance than you would think from the reporting. There was no “black economy within the banks” they where having a disagreement with the tax authorities over a fairly esotheric point of implementing tax law.
I was criticising journalist because if they had understood the issue they would not have allowed themselves to be used to blow this out of all proportions. There is enough wrong in Iceland that they can report on without inventing outrages.
Ah-ha. Understood. Still, it will be interesting to see what the investigation turns up.
I am no expert in Icelandic tax. If you are talking about failing to pay tax on receipt of value / benefit, then perhaps the issue would be provision of loans at undervalue (say no security), write off of loans on non commercial terms, sweat heart loans / accounts / derivative transactions by the banks to favoured customers eg should tax be paid on the provision of non commercial loans to, say a large shareholder in a bank?
Who pays the tax may be a diversionary issue from the possibility that neither party to these transactions intended to pay any tax on the benefit they recieved?
Per journalism, who exactly beyond a very few bankers understands credit derivatives? But if the big black headline in the morning paper said each of you is being ripped off for 10,000 ISK (I just made that up) per year, that might get some attention.
It would devolve to the journalist to explain how as simply as possible. As in the banks not paying their fair share, and you the taxpayer paying it for them.