Skatteverket Report on Random Control of Foreign Income: 

This report from the Swedish Tax Agency (Skatteverket) details the results of random controls on foreign capital income data obtained through international information exchange agreements like DAC2, CRS, and FATCA. The aim is to understand misreported income and improve future controls.

Here’s a snapshot of the key findings relevant to individuals with foreign income who may have misreported:

About the Data & Controls:

• Sweden participates in automatic information exchanges (DAC2, CRS, FATCA) to facilitate cross-border tax cooperation. These systems exchange financial account information between countries. 

• In 2022, Skatteverket conducted random checks on data related to balances and income from bank accounts. 

• The controls specifically covered holdings and income from dividends (CRS 501) and interest (CRS 502). 

• The target population for these controls included individuals who were considered unlimitedly tax resident in Sweden for the 2020 tax period and received dividend and/or interest income exceeding SEK 2,000 per country where they held an account. 

• During the review, more accounts were discovered than initially reported through the information exchange.

   

Key Findings on Misreported Income:

• Prevalence of Errors: Slightly over 50% of account holders in the random review had misreported foreign capital income. 

• Additional Tax Revenue: These misreports resulted in SEK 2.4 million in additional tax revenue. 

• No Gender-Based Difference in Errors: There is no statistically significant difference between men and women in terms of the average frequency of changes (misreports) or the average tax error. Although men account for about 80% of the capital income subject to capital taxation, both genders make errors in their reporting at a similar rate.

   
    

• Age and Errors:

  • While older individuals primarily own foreign assets, it’s the middle-aged population that yields the highest return, forming the largest tax base for capital taxation, and where most errors are found. 

  • A higher proportion of younger account holders (under 65 years) misreport compared to older account holders (over 65 years). For those under 65, the average change frequency was 62%, compared to 40% for those over 65.  

  • There is no statistically significant linear correlation between age and the magnitude of the changes (the amount of misreported income).

     

• Geographical Location of Assets and Errors:

  • The vast majority of Swedes’ foreign capital assets are located in Europe, particularly Switzerland, which is classified as a low-tax country. Significant assets are also held in the UK and Luxembourg. 

  • Approximately 56% of all income in the sample originated from low-tax countries, and the average income from these countries was significantly higher (over seven times) than from other countries. 

  • About 15% of all accounts in the sample are located in low-tax countries, accounting for over 60% of all assets. 

  • Approximately 30% of the total change amount (misreported income) came from accounts in low-tax countries, and the average change amount from these countries was significantly larger (2.6 times higher).

     The error frequency is around 45-50% for most continents, suggesting that risks are more tied to individual countries or personal characteristics.

Implications for Taxpayers:

• The Swedish Tax Agency receives around one million control statements annually for 500,000-600,000 individuals, covering various income types from almost 100 countries.

   Swedish account holders receive, on average, SEK 70 billion per year in interest, dividends, gross income/redemptions, and other income from these foreign assets. 

• Given that approximately 50% of individuals in the target population make errors, it is crucial for taxpayers to understand

  why these errors occur and to ensure accurate reporting of foreign capital income. 

• The report emphasizes the need to continue analyzing the effects of these controls and other measures, such as information initiatives, to improve future compliance