18 June 2024

A year and a half in Luxembourg shaped Niels Johannesen's career


Niels Johannesen is a professor of economics and works partly at the Department of Economics at UCPH and partly at Oxford University, where he is director of the Centre for Business Taxation. "I have always thought that taxes are important," he tells Berlingske Tidende in an interview about the registration of Danish properties in tax havens.

Niels Johannesen

As a new graduate in Economics, Niels went to Luxembourg to work in PwC's tax department. It was there that young Niels realised that there was a lot of tax thinking going on in the country. So, after a year and a half, he returned to Denmark and started a PhD at the Department of Economics. He tells Berlingske Tidende: "I've always thought that taxes are important. Half of our income is taxed, so of course it's a problem if some people can opt out and not pay tax. It is also an interesting field - it often has the character of detective work".

Real Estate in tax havens

Berlingske Tidende has investigated how many Danish properties are registered in tax havens. They calculated that of the more than DKK 5,600 billion worth of property in Denmark, 1.24 percent is owned through countries on the list of 52 tax havens.
More than 70 per cent of the tax havens that used to own Danish property also lead back to Luxembourg. Niels Johannesen has a good explanation for why Luxembourg is a popular tax haven in the Danish context: Luxembourg is a member of the EU.
"This means that there are certain types of rules that Denmark would never be able to impose on Luxembourg because of the principles of free movement of capital.

On the surface, Luxembourg has a normal tax system, but it is deliberately designed so that multinational groups can achieve very low tax rates on income that is artificially shifted from other parts of the group to Luxembourg. If you are a global company that has been willing to shift profits away from financial activities, you can achieve very low taxes," he says.

One such activity could be real estate trading, which Niels Johannesen says is increasingly linked to tax havens:
"There has been a lot of focus on hidden financial assets in tax havens. A lot of money has been invested in getting a better handle on these challenges with information exchange, so that if you open an account in Switzerland today, for example, the Danish Tax authorities will automatically be informed about it the following year," says Niels Johannesen. The same control is not yet in place when it comes to assets such as real estate, and new studies show that this is being exploited.

“When an investment property in Denmark is sold at a profit, 37-42 percent of the profit is taxed. However, if the property is traded indirectly through the sale of a company, no tax is generally payable. If the transaction takes place through a tax haven where it is not transparent who is trading the shares in the company, it becomes difficult to contain.

This model is used by foreign private equity funds, especially through Luxembourg. And it goes against the intention of the tax legislation, says Niels and concludes the interview in Berlingske Tidende with the following: "You shouldn't have special opportunities to reduce your taxes if you know some clever lawyers and have a lot of money.