Norwegian tax authorities are trying to crack down on what they fear is widespread tax evasion among locally based employees of foreign embassies in Norway. More than 50 employees at the US Embassy in Oslo alone are now under suspicion of failing to declare their incomes, which the embassies themselves generally don’t report to local authorities either, despite official repeated requests that they do so.
“We have seen that there are many embassies, which have Norwegian employees, that don’t send in income and deduction statements,” Atle Myklebust, divisional director of the Oslo tax office (Oslo Kemnerkontor), told Norway’s TV2, which broke the story about the large number of US Embassy employees who haven’t been declaring their income or paying local income tax.
In as many as 20 of the tax evasion cases now under investigation, the amounts of unreported income and unpaid tax are so large that tax authorities have reported the US Embassy employees to the police. They risk up to a year in prison and NOK 500,000 (USD 83,000) in fines. Their unpaid taxes can also be hit with penalty taxes.
Two-thirds don’t report
Tax authorities reported that fully 46 of 66 embassies in Norway have either neglected or refused to report how much money they’ve paid to their locally hired employees, even though Norwegian law requires such income filings from all employers in the country. Hans Olav Syversen, a Member of Parliament for the Christian Democrats party, told newspaper Dagsavisen over the weekend that not only can the employees themselves risk losing social welfare benefits and getting in serious trouble with tax authorities, but the embassies can be seen as intentionally defying Norwegian law. Syversen said he would be asking Foreign Minister Børge Brende to make sure that the embassies follow Norwegian law.
The embassies, however, already have been “given the message” to follow the law, according to foreign ministry spokesman Svein A Michelsen. “Norwegian authorities expect foreign embassies in Norway to follow Norwegian law, also regarding their locally hired employees’ tax obligations and payment of employer taxes (called arbeidsgiveravgift, that’s the tax employers pay per employee, to help cover the cost of sick leave, maternity or paternity leave and other social welfare benefits in Norway),” Michelsen wrote in an e-mail to TV2. He added that Norway’s foreign ministry “has forwarded the tax authorities’ clarification of this to the embassies in Oslo.”
Embassies and their officials, however, can claim diplomatic immunity and are, in practice, under no obligation to obey local laws. Norwegian authorities also have no right to enter an embassy like they can other places of employment and demand to conduct an audit. Michelsen noted that Norwegian authorities “don’t have the possibility to go into an embassy to control whether they are abiding by their obligations.”
Locally hired employees, however, are obligated to declare their own incomes even if their embassy employer doesn’t do so, and they’re required to pay tax. The discovery of widespread suspected tax evasion at the US Embassy occurred after the spurned partner of an embassy employee tipped off tax authorities. She handed over her former boyfriend’s bank account number, and tax authorities could then trace where his payments were coming from, which turned out to be the US Embassy. The authorities could then trace who else was receiving income from the US Embassy’s account.
The current case bears similarities to revelations three years ago that the US Embassy also was paying unreported and non-declared income to former Norwegian police officers who worked as agents for the embassy, conducting secret and highly controversial surveillance of their fellow Norwegians. The 11 Norwegians earned a total of NOK 10.2 million that they’d never declared or paid tax on, but the case against them was ultimately dropped because US Embassy officials refused to cooperate with the police investigation that was conducted by the Østfold Police District to avoid conflicts of interest with police in Oslo. TV2 reported that the former police officers ultimately got off with only paying their back taxes and a 30 percent penalty.
The US Embassy issued a short press release on Sunday, confirming that it “does not share its employees’ income information with Norwegian authorities.” The embassy defended its defiance of the law by calling it “common practice by many embassies in many countries, so that overseas mission don’t act on behalf of the host country’s tax authorities.”
The US Embassy stated that its individual employees are, however, obligated to pay local applicable taxes themselves, “and the embassy believes that most of our employees have abided by Norwegian tax rules.” The embassy contended that more than 400 locally hired employees have worked at the embassy “during the time period reported by the media.”
The embassy further stated that it “expects that all employees maintain a high standard of professional and personal integrity and reliability,” but there was no comment on whether its more than 50 employees now under investigation face disciplinary action or dismissal.