Danish Funds With $370 Billion Warn External Managers on Taxes

(Bloomberg) -- Pension funds in Denmark have issued a warning to external managers, making clear that they risk being fired if caught engaging in aggressive tax optimization.

The move represents an industrywide measure intended to thwart tax avoidance and live up to the United Nation’s Sustainable Development goals. A total of 11 firms, representing over half of Denmark’s pension assets, have now committed to a tax code of conduct that targets unlisted investments. ATP and PFA, Denmark’s two biggest pension funds, were among those to first advocate the move in August.

“We expect our collaboration on responsible tax practices to strengthen our dialogue with external managers and thereby contribute to avoiding aggressive tax planning and at the same time promote fiscal transparency in investments,” the funds said in a joint statement on Monday. “It is our hope that our common principles will evolve into an actual industry standard.”

The measure comes as governments increasingly take action against aggressive tax planning, following a string of scandals in which state coffers were emptied of public revenue. In Denmark alone, a scam exploiting dividend tax rebates defrauded the state of about $2 billion, while Germany is currently investigating similar crimes in a much larger case.

Danish lawmakers proposed in November that the country adopt the European Union’s Anti-Avoidance Directives.

Core Elements of the Danish Pensions’ Tax Code

• Pension companies won’t accept aggressive tax planning
• Spot checks will be done to enforce the policy
• There’s also a call for increased transparency
• Managers will be required to monitor and manage tax risks “in a responsible manner”
• Managers will also be encouraged to adopt policies regarding taxation

Denmark’s pension industry is ranked second in the world for its sustainability, integrity and level of benefits. (The Netherlands tops the Melbourne Mercer Global Pension Index by a few points.)

To contact the reporter on this story: Frances Schwartzkopff in Copenhagen at fschwartzko1@bloomberg.net

To contact the editor responsible for this story: Tasneem Hanfi Brögger at tbrogger@bloomberg.net

©2020 Bloomberg L.P.