April 18, 2024 — Sweden’s tax authority has uncovered substantial irregularities involving 18 companies engaged in crypto mining under the guise of legitimate data center operations. The investigation, which took place from 2020 to 2023, revealed that these companies exploited tax incentives inappropriately, leading to a demand for an additional 990 million Swedish krona ($91 million) in taxes, inclusive of value-added tax (VAT) and surcharges.
The Swedish Tax Agency, led by the head of the intelligence unit, Patrik Lillqvist, conducted the investigation into these companies, which misleadingly registered as data centers eligible for certain tax incentives but primarily engaged in cryptocurrency mining.
The tax agency’s probe has exposed a series of deceptive practices by these companies, including false reporting of their business activities. This deception has resulted in significant tax evasion and possibly facilitated money laundering, given the lack of regulatory oversight specific to crypto mining operations.
The findings are based on an extensive three-year investigation covering the period from 2020 to 2023. The tax authority has recently issued its demands for tax payments and is taking actions to rectify the tax evasion uncovered.
The investigation focused on various data centers across Sweden, which falsely claimed to be engaged in VAT-liable business activities unrelated to their actual operations in cryptocurrency mining.
The companies involved aimed to secure undue tax advantages by exploiting incentives meant for other types of technological and business activities. This malpractice has led to significant financial discrepancies and potential losses in tax revenue for the Swedish government.
The tax authority used detailed audits, including analysis of web browsing histories and chat messages from company representatives, to uncover the true nature of the businesses. For example, Datorhall AB and Datacenter AB, two of the implicated companies, provided misleading information about their operations, which were predominantly focused on crypto mining, despite claims of engaging in consulting services and development of high-performance computing products.
The investigation’s outcomes have led to ten appeals by the companies, with the majority being upheld in favor of the initial findings by higher authorities. Only one appeal resulted in a partially modified ruling in favor of the company.
This crackdown highlights the ongoing challenges and risks associated with the integration of cryptocurrencies into formal financial systems, as echoed by the concerns of Sweden’s Central Bank Governor regarding Bitcoin’s role in the financial sector. These developments signify a critical juncture for regulatory practices surrounding emerging technologies and financial systems in Sweden.
