Spotify Cofounder Martin Lorentzon Outed as a Tax Dodger…

It’s been a week of outing the tax avoiders.  First, Eric Schmidt was grilled on BBC Radio 4’s The World at One over the fact that Google pays virtually no tax on UK profits, despite sales of £3.1 billion ($4.8 billion).  Google does it by diverting most of its British revenue via Ireland.

Matter of fact, last year the company paid only £227 million ($351 million) in “foreign” corporation tax, despite £16.9 billion ($26.1 billion) in sales outside the US.  Schmidt defended the company’s tax planning by saying Google “invested heavily in Britain” through hiring employees there, and empowered “literally billions of pounds of start-ups through [its] advertising network”.

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It turns out, however, that Facebook goes even lower.  When the company’s chief operating officer, Sheryl Sandberg, was questioned by a BBC World News reporter over the “whopping” 0.5% tax the company pays outside of the US, Sandberg (like Schmidt) said defiantly that Facebook complies with all tax laws and regulations.  “I’m not accusing Facebook of committing a crime,” countered the reporter.  “I’m asking you if you think it’s ethically and morally acceptable to pay that little considering the financial hardship [the rest of the world] is currently experiencing?”

Sandberg simply reiterated that the company wasn’t doing anything illegal.

Incidentally, Martin Mills, the founder and chairman of the Beggars Group, the independent label group that has Adele and Radiohead on their roster, calculated last year that he had paid more UK taxes than Facebook, Google and Amazon combined in the latest tax year.

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Now it’s come to light that Spotify co-founder Martin Lorentzon is also a member of the tax avoidance club – though he’s gone one better than Facebook and managed to avoid paying taxes altogether in the country where he’s based.  The Swedish National Radio reports that Lorentzon set up a company called Rosello in Cyprus in 2005, just as he was about to sell his stocks in Tradedoubler – a sale that earned him at least 250 million Swedish kronor ($38 million) in profit from 2005-2007.

Had those shares remained in Lorentzon’s Swedish company (he has remained a registered resident of Sweden all this time), he would’ve had to pay at least 25% in corporation tax.  That’s more than 60 million kronor ($9.1 million).

However, Lorentzon transferred the shares to his Cyprus company in anticipation of the sale, turning his tax liability into zilch.

According to recent official documents, Lorentzon’s share of Spotify is also in Rosello – shares that, according to the radio report, are worth billions of kronor.  There is very little information available about the company at Cyprus’ company register – it hasn’t even filed any yearly reports since it was set up, which is against registry rules.

None of the people involved in the company are identified in the documents, but its mailing address belongs to Nordic Finance, a company run by a former employee of the Swedish tax office, which promotes Cyprus as “an attractive location for tax planning”.

The register does reveal that Rosello is owned by Luxembourg-based company Amaltea – which, it turns out, is owned by Lorentzon.  Amaltea shares its Luxemburg address with Spotify’s parent company, which in turn is owned by Rosello.  See how that works?

Despite being a resident of Sweden, Lorentzon hasn’t paid any taxes in the country for 2007-2010 (the latest tax period for which information was accessible).  According to the tax office, Lorentzon was worth 140 million kronor ($21.2 million) in 2006, but it has no details on his financial state after that.

The reason the Spotify co-owner’s tax arrangement is making the news now is because Lorentzon has been elected onto the board of Swedish telecom giant Telia Sonera, and tasked with increasing the company’s corporate social responsibility.  Telia Sonera’s former employees are under investigation in an alleged bribery and money laundering case in Uzbekistan.

Incidentally, Lorentzon’s 230,000 shares in Telia Sonera go through his Cyprus tax arrangement as well, but Kristina Ekengren at the ministry of finance, who partook in the nominations, didn’t think this was reason to exclude him from the board.  “The government believes that people should contribute to the Swedish society by paying taxes here, and I agree.”

But, she says, Lorentzon’s accomplishments as an entrepreneur are unique for Sweden, as he’s built two successful companies in the new technology sector.  “He’s difficult to beat. I think we should be proud of him in Sweden.”

So there you have it – the Swedish government apparently thinks tax avoidance is morally and ethically okay as long as you give Sweden a chance to brag about your business accomplishments.

Images: (top) Jacob Davies, licensed under Creative Commons Generic Attribution 2.0 License; (middle) adapted Spotify publicity shot. 

25 Responses

  1. Visitor

    “Google pays virtually no tax on UK profits, despite sales of £3.1 billion ($4.8 billion). Google does it by diverting most of its British revenue via Ireland.”

  2. @mattadownes

    Its called a Double Dutch Irish Sandwich. Its extremely legal and a methodology used by all the top corporations such as Apple, Google, Facebook, Amazon and big bands even do it too, to avoid income tax in the U.S.
    Tax avoidance is legal, tax evading is not.

    • musicservices4less

      “Tax avoidance is legal, tax evading is not.”
      While I can’t comment on UK tax laws, here in the US there are 2 issues. First, if the entities are just set up for tax purposes and have no real business activity that could present a questionable transaction. But more importantly, US citizens are required to report to the US on their personal tax return if they have an interest in an offshore entity. Most don’t and therefore they might have a problem if found out. These comments only apply to individuals. With other entities different rules apply.

  3. Tax Attorney

    Thank goodness you didn’t use the word “loophole.”

  4. Alex

    “Tax cheat”? He hasn’t done anything illegal, even the Swedish gov’t acknowledge that. A bit of a libellous headline perhaps?

    • Visitor

      “”Tax cheat”? He hasn’t done anything illegal”
      Did Paul say it was illegal?
      As far as I can see, the story just suggests that this Spotify guy might be an antisocial parasite.
      Nothing criminal about that.

  5. Yves Villeneuve

    The fairest system is all companies in the world pay no tax and every individual receives zero tax breaks on capital gains, dividends and interest income. A flat income tax rate and zero consumption taxes is also the fairest individual tax code.

  6. Visitor

    Apple seems like a pretty obvious inclusion to this article, what with their just revealed US tax avoidance strategy of borrowing cash instead of repatriating foreign revenue. But I’m not seeing anything about Apple here?

  7. Helienne

    It’s clear in the piece that tax avoidance is not illegal. The question is if it’s morally and ethically defensible, and should it be condoned? Here in the UK an actor got slammed for using such “tax planning”, and as a consequence he stopped doing so. Until the governments do something about it, naming and shaming is the only tool citizens have. When Starbucks got shamed for such practices people boycotted the chain. Unfortunately it’s more difficult to boycott Google…

    • Visitor

      It’s not that hard to boycott Google. But one has to ask if their competitors are really any better. It doesn’t seem that they are.

      • Visitor

        “It’s not that hard to boycott Google. But one has to ask if their competitors are really any better.”
        Probably not when it comes to taxes.
        But when it comes to piracy?
        I just did a test:
        I googled and binged the first song I could think of — Ke$ha’s Die Young.
        Bing’s top result: Youtube.
        Google’s top result: mp3skull.
        Interesting on so many levels, wouldn’t you say?

        • ahem

          Interesting on one level, certainly. Google will adapt it’s results based on your past browsing history.

          Look what happens when you google in a totally anonymized browser.

    • Al C.

      What is also clear is that you labeled Lorentzon a “cheat” when he is doing something that is well within the rights of every US taxpayer.
      The article is about your personal views, not the music business.

      • Helienne

        Paul wrote the headline, not me. Incidentally, Lorentzon is not a US tax payer – he’s a resident of Sweden and is Swedish.

        • Al C.

          Nice try to deflect my points.
          If as you say, then Paul is out of line. Your audience is mainly US, and were Lorentzon a US citizen he would have the right to lower his taxes in any legal manner available. The editorial angle of the article is suspect. So sayeth the Federal Courts.

  8. David@indigoboom

    Helienne, the question that needs asking is: Who is to blame when someone follows their financial advisors. The lawmakers or the person taking advice? I think the answer is a no brainer.

  9. Biggy

    Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one’s taxes.
    Helvering v. Gregory, 69 F.2d 809, 810-11 (2d Cir. 1934).

    • Visitor

      Uh no. Ethical people like Helieene and Paul pay the maximum they can (ie. 100%) of their income to taxes.

    • Biggy

      Changing the article headline from cheat to dodger accomplishes what? You have already libeled the man, and your argument is still wrong according to the US Fedral Court.

  10. Nice Guy Eddie

    As many have mentioned above; using every legal means to lower your tax is not being a tax cheat.
    The article would have been more effectrive if it had a headline like”This is how people with lot’s of money pay lower tax rates than the average wage slave.”
    Of course it doesn’t have the same impact as a headline that says someone is a cheat or suggesting that someone is doing something immoral or improper.