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This is an incredible story. In short: Denmark automatically withholds taxes on dividends. If you’re a foreign shareholder, you can apply for a refund on the wi

by bdr 8y ago

This is an incredible story. In short: Denmark automatically withholds taxes on dividends. If you’re a foreign shareholder, you can apply for a refund on the withholdings. But they weren’t actually checking whether you owned the shares.

_nalply 8y ago
No, they were checking buy orders but these were canceled after refunds. The fraudsters had a scheme with several American pension plans which where bogus trading with each other. It's a fraud.
- deleted 8y ago
  [deleted]
- thaumasiotes 8y ago
  The article, which appears to be trying its hardest not to describe what happened, specifies the following: 1. There was a pool of retirement accounts that traded with each other. 2. In an example of the scam, one of these accounts would place an order to sell Danish stocks short, presumably cum-dividend. 3. Another account would respond by placing an order to buy the same stocks. This order never went through, presumably because it was placed at a lower price point. 4. The "buy" account would get its dividend taxes spuriously refunded and then cancel the buy order. The "sell" account would cancel its sell order. I don't see what the role of the "sell" account is. It looks to me like you could do exactly the same thing with just the "buy" account.
  - dgacmu 8y ago
    I can't figure it out either from the details provided in the NYT article, but there's a more clear article about the related case in Germany: https://www.reuters.com/article/germany-dividends/dividend-tax-scandal-how-banks-short-changed-germany-idUSL8N1991BN https://www.reuters.com/article/germany-dividends/dividend-t... In this case, though, it involved a bank that owned the shares: The bank would loan the shares to a shorter, the shorter would sell them to a buyer, and both the bank and the buyer would collect the dividend refund. I wonder if there's some detail the NYT author missed in terms of double ownership that would make the short sale make more sense.
    - toast0 8y ago
      A short sale that's unwound after the dividend makes a lot more sense. Both the buyer and the lender of the shares are owed a dividend, and depending on how the records reflect that, I could see both being able to claim the refund. Under US law, a dividend paid to you by a borrower is taxable as ordinary income, not as a qualified dividend -- usually the borrower (short seller) will pay a premium on the interest to reflect the difference in effective tax rates. I don't know the rules for Denmark, but it seems that having a withholding requirement on the dividend payer ads to complexity, because it requires a refund process. It might be better to have simply required reporting of the income, and maybe required withholding by brokerages.
      - _nalply 8y ago
        Perhaps they should have been able to detect a mis-use of this scale because the refunds exceed the deductions by a wide margin. Or perhaps a lot of people never request a refund so they were used to keep billions of dollars in dividend taxes so this went under their radar?...
  - bradleyjg 8y ago
    We need a Matt Levine write-up.

by bdr 8y ago

_nalply 8y ago

No, they were checking buy orders but these were canceled after refunds. The fraudsters had a scheme with several American pension plans which where bogus trading with each other. It's a fraud.

deleted 8y ago
[deleted]
thaumasiotes 8y ago
The article, which appears to be trying its hardest not to describe what happened, specifies the following: 1. There was a pool of retirement accounts that traded with each other. 2. In an example of the scam, one of these accounts would place an order to sell Danish stocks short, presumably cum-dividend. 3. Another account would respond by placing an order to buy the same stocks. This order never went through, presumably because it was placed at a lower price point. 4. The "buy" account would get its dividend taxes spuriously refunded and then cancel the buy order. The "sell" account would cancel its sell order. I don't see what the role of the "sell" account is. It looks to me like you could do exactly the same thing with just the "buy" account.
- dgacmu 8y ago
  I can't figure it out either from the details provided in the NYT article, but there's a more clear article about the related case in Germany: https://www.reuters.com/article/germany-dividends/dividend-tax-scandal-how-banks-short-changed-germany-idUSL8N1991BN https://www.reuters.com/article/germany-dividends/dividend-t... In this case, though, it involved a bank that owned the shares: The bank would loan the shares to a shorter, the shorter would sell them to a buyer, and both the bank and the buyer would collect the dividend refund. I wonder if there's some detail the NYT author missed in terms of double ownership that would make the short sale make more sense.
  - toast0 8y ago
    A short sale that's unwound after the dividend makes a lot more sense. Both the buyer and the lender of the shares are owed a dividend, and depending on how the records reflect that, I could see both being able to claim the refund. Under US law, a dividend paid to you by a borrower is taxable as ordinary income, not as a qualified dividend -- usually the borrower (short seller) will pay a premium on the interest to reflect the difference in effective tax rates. I don't know the rules for Denmark, but it seems that having a withholding requirement on the dividend payer ads to complexity, because it requires a refund process. It might be better to have simply required reporting of the income, and maybe required withholding by brokerages.
    - _nalply 8y ago
      Perhaps they should have been able to detect a mis-use of this scale because the refunds exceed the deductions by a wide margin. Or perhaps a lot of people never request a refund so they were used to keep billions of dollars in dividend taxes so this went under their radar?...
- bradleyjg 8y ago
  We need a Matt Levine write-up.