Sweden Demands $90M from Crypto Miners in Allegedly Evaded Tax

A total of $90 Million was evaded in taxes, the regulator claims.

Sweden’s tax agency Skatteverket is demanding 18 data centers pay 990 million kronor ($91 million) after an investigation found they allegedly evaded taxes by concealing their crypto mining activities.

In a report published on Wednesday, the Swedish tax agency disclosed its investigation of 21 data centers from 2020 to 2023 but did not specify the names of those companies. Skatteverket said 18 of them deliberately concealed their crypto mining operations to be eligible for VAT deductions.

The regulator said that those companies would claim that they were providing computing power for AI, CGI rendering, and research purposes. The sale of those reported services gives the right to deduct input VAT if sold to companies abroad, while crypto mining is not a VAT-deductible activity in Sweden, according to a translation of the original report.

Skatteverket specified that a typical scheme for the investigated data centers would involve having foreign companies as reported clients. Additionally, the regulator alleged that those data centers deducted output VAT on their imported mining equipment, falsely claiming that the machines were used to perform VAT-deductible activities.   

A Swedish court reviewed ten of the investigated cases. It rejected the appeals from eight of the ten companies, partially upheld one appeal, and fully sided with one company’s appeal.

The tax agency indicated that it faced challenges during the investigation in defining what activities the data centers were actually conducting to determine their eligibility for VAT deduction. Indeed, it is not news that the Swedish Tax Authority has been accessing applications relating to VAT from mining data center operators since 2022.

According to HIVE’s earnings report in Q4’22 and Q4’23, two Swedish subsidiaries of the bitcoin mining and HPC firm filed formal appeals to the County Administration Court in 2023 after receiving notices from the Swedish Tax Authority indicating its intent to reject HIVE’s application to recover $40.9 million in VAT.

In the Q4’23 earnings report, HIVE said it did not believe the Swedish Tax Authority’s decision was “compatible with the currently applicable law and therefore the amount claimed to be owed by HIVE is not probable.”

In July 2023, authorities in Sweden lifted the 97% tax break on electricity consumed by data centers, increasing the price from SEK 0.006 ($0.00055) to SEK 0.36 ($0.033) per kilowatt hour (kWh). The tax break was originally introduced in 2017 in a bid to accelerate the growth of the country’s IT sector.

Explaining the rationale behind the lift in the 2022 financial budget report, the Ministry of Finance argued that the tax break didn’t create as many jobs as the state hoped, and effectively attracted crypto mining activities.