Goldman Sachs, Citigroup, Merrill Lynch and other international banks have profited for years by arranging short-term loans of stock in Danish companies, a maneuver that has helped shareholders but deprived Denmark of substantial tax revenues.
With the banks’ help, stock owners avoid paying Danish authorities the dividend taxes they would otherwise owe on their holdings of companies like Maersk, Novo Nordisk, Danske Bank, Tryg and Carlsberg, among others.
They do so by lending the shares to banks that temporarily transfer them to other investors with low or no tax obligations around the time when the dividend is paid. The terms are hedged and arranged months in advance. After dividend time, the borrowed shares are returned, and the tax savings are shared among the investors and banks that arranged the trades.
The maneuver — known as dividend arbitrage, or “div-arb” — cost Denmark about 400 million Danish crowns ($60 million) in lost taxes last year alone, according to an estimate that we asked CEPOS, a Danish think tank, to provide for this article
For a country of 5.7 million, the lost revenue is significant: It equals roughly 1.1 percent of the budget deficit of the Danish government last year, or about 70 Danish crowns ($10) for each resident.
The tax-avoidance trades are detailed in confidential documents that ProPublica examined in collaboration with the Danish business daily Børsen. The documents include trade logs, emails, chat messages and marketing materials that show how such trades happen in Denmark and various other countries.
For the first time, the documents reveal who is engaged in this kind of tax avoidance, which has already drawn scrutiny from regulators and lawmakers in Germany as they …