Analysis: The debate over Danish pension funds’ tax haven investments gets political

Pension funds find themselves in the political firing line over tax

Some Danish opposition parties are trying to keep alive the debate over the use of offshore funds in jurisdictions that are reputed tax havens by the country’s main pension funds.

One focus is ATP, the mandatory labour market scheme with more than 5m members and $107bn in assets.

Lisbeth Bech Poulsen, tax rapporteur of the Socialist People’s Party (Socialistisk Folkeparti), confirmed to RI that on January 11 she will hold a parliamentary open consultation (samråd in Danish) with the Tax Minister Karsten Lauritzen over the government’s strategy following the release of the EU recent list of non-cooperative jurisdictions for tax purposes.

“The EU blacklist should have consequences for national investment policies,” she said, adding that “public and semi-public funds” should not flow through tax havens.

The public debate in Denmark about the use of jurisdictions generally considered as tax havens predates the release of the Paradise Papers in early November.

In May this year, Bech Poulsen requested another samråd with the Employment Minister to clarify the interpretation of the fiduciary duty formulated in the act of parliament which created ATP.

The Tax Minister and ATP interpret that it is a legal requirement to maximize returns for its beneficiaries, including seizing investment opportunities in foreign jurisdictions that allow the scheme not to miss out on otherwise lawful profits.

As of June 2017, data on ATP’s international private equity showed investments in 21 funds domiciled in Cayman Islands worth DKK64bn, of which nine funds worth DKK9bn were set up by Goldman Sachs.

Bech Poulsen disagrees with this interpretation, saying ATP is “legally bound to uphold the real value” of investments as “confirmed by the Minister of Employment” who asked ATP following May’s samråd to issue a statement explaining the need to use tax havens.

Bech Poulsen said: “The ATP statement was supposed to be in our hands last Friday, December 8. I’ve written to the Minister of Employment for an explanation.”

Asked whether there are diverging interpretations between the two Ministries, both led by the ruling Liberal Party (Venstre), a spokesperson for Lauritzen declined to comment. Troels Lund Poulsen, Minister of Employment, did not reply by the time of writing.

Similarly, Finn Sørensen, MP for the Red-Green Alliance (Enhedslisten), disagreed with Lauritzen’s interpretation and said the law does not force ATP to invest in tax havens.

He told RI that his group in parliament is working on a proposal that would change the law to prevent ATP from investing in tax havens. Despite not immediately expecting “majority support”, Sørensen believes “Socialistisk Folkeparti and Alternativet will support it”.Following the release of the Paradise Papers, Danish newspaper Politiken published a survey of the 19 largest pension funds, in which it asked them for disclosures of investments in a number of offshore jurisdictions.

The survey showed that nine members of Dansif, the national SRI investment forum, make use of funds in Cayman or Bermuda, with one of them, PFA, having set up its own Cayman fund and later reallocating it to Luxembourg.

The only exception among the surveyed funds was the non-Dansif member, Alm. Brand Pension. Its Senior Vice-President and Head of Asset Management & Institutional Sales, Torben Frederiksen, argues that from an ethical perspective, it’s not necessary to go offshore to get good investment returns.

Asked by RI whether any concrete action has emerged from this public debate in Denmark, he answered: “Nothing”, adding that such action should come from the political sphere.

“I fear Enhedslisten’s influence is not too big. And most other parties in the Parliament are reluctant to go more active into the discussion.”

Frederiksen added: “As long as it is not considered illegal, I don’t think any of the pension funds will voluntarily abandon investments in tax havens.”

Asked whether Dansif provides members with guidance on the use of jurisdictions considered to be tax havens, current Chair and Head of ESG at PensionDanmark, Johan Mellerup, answered that as an apolitical forum, Dansif does not make statements on political issues.

At ATP a spokesperson said the investments in Cayman funds are not intended to avoid payment of any tax dues.

“From a tax point of view, it doesn’t make any difference for ATP whether we are investing in funds located in the Caymans, Germany or here in Denmark. We are paying 15.3% Danish pension yield tax. No more no less,” the spokesperson said.

The spokesperson added: “These transparent funds make it possible for us to invest with international investors. We make sure only to choose funds located in countries which have joined the CRS [OECD Common Reporting Standard] or FACTA [US Fair and Accurate Credit Transactions Act] and we have no investments in countries listed on EU’s list of non-cooperative tax jurisdiction.”

While Bech Poulsen acknowledged ATP might not engage in tax avoidance by using tax havens, she said it is nonetheless offers support and is “part of maintaining the current global tax regime”.

A board meeting of ATP will take place before the end of the year, for which the Danish Confederation of Trade Unions (LO) has requested that these issues be discussed. The ATP spokesperson said there was no agenda of the meeting available.