Investigation finds 18 data centers secretly mining crypto in Sweden

Eighteen companies in Sweden, disguised as legitimate data centers for AI or other activities, have been found exploiting tax incentives and evading millions in taxes to mine cryptocurrency. The Swedish tax agency Skatteverket is demanding nearly one Billion kronor ($91 million) in additional taxes.

The Swedish Tax Agency conducted a targeted audit of 21 companies operating data centers from 2020 to 2023 as part of its mandate to counter systemic attacks on the tax system.

According to the agency’s report, investigators have faced challenges in defining who were using the computers and what business these data centers were actually conducting in nearly all cases.

“The companies we have audited have a particular approach to try to conceal that they are engaged in mining, that is, creating new units of cryptocurrencies. The purpose is that they want tax benefits they are not entitled to,” says Patrik Lillqvist, Intelligence Chief at the Swedish Tax Agency.

The effort has led to decisions on tax adjustments totaling SEK 990 million. This amount includes SEK 932 million in VAT changes and SEK 58 million in other tax supplements.

Some mining data centers have provided misleading and/or incomplete business descriptions to the authorities. By claiming to conduct VAT-liable operations, companies obtained tax advantages on false grounds.

“There is an incentive for unscrupulous actors to conceal their cryptocurrency mining operations and instead claim that they are conducting VAT-liable business activities. In this way, tax revenues disappear from the country in the form of incorrect payments from the state, unpaid output VAT, and unreported crypto assets,” Lillqvist added.

The tax authority also warned that there is a risk of money laundering because mining data centers are not covered by the Money Laundering Act and are, therefore, not subject to regulatory supervision.

It is unclear how much of the cryptocurrency has been mined and sold and for how much. There is a tangible risk of additional income tax losses through unreported sales, the tax authority stated.

Ten decisions have already been reviewed by higher authorities, and in eight cases, the court rejected the companies’ appeals. In one case, the court granted the appeal partially.

How does the scheme work?

The report included a detailed explanation of the scheme. First, a company is registered in Sweden to operate a data center, with the main purpose of the operations, which is cryptocurrency mining, concealed. The representatives claim that the company conducts other types of business, such as selling computing power to customers abroad.

Second, another company is established abroad to make it appear as if it is purchasing services from the Swedish company. The sale of services from Swedish companies to foreign customers, unlike mining operations, is a VAT-liable business that entitles deduction and refund of input VAT.

“Through this approach, unscrupulous actors can deduct input VAT under false pretenses. They can also avoid paying output VAT on imported mining computers, which they would have had to pay if they had stated that they were conducting mining operations,” the agency explains.

The mined Bitcoin, Monero, or other units of cryptocurrency are not reported in Sweden. It is unclear to the Tax Agency whether the crypto assets and any sales thereof are reported abroad.

Pretended to sell computing power for AI and graphic films

In one provided example, the company Datorhall AB (eng., Data Center AB) has stated to the authorities that its business is consulting and operating data centers and developing new products in high-performance computers. The investigation revealed that the company only had one customer, a foreign company, which had a related party. Datorhall only used crypto-mining computers.

Another company called Datacenter AB declared that its operations consisted of selling computing power to create graphic films and support artificial intelligence. The tax agency obtained the web history and chat messages from various company representatives. Communication revealed that 93 percent of the company's searches were linked to mining, while less than one percent can be linked to creating graphic films.

“Crypto will be the last word we will ever mention to anyone from day one. We are a data center with operations and computers that customers use for graphic films and artificial intelligence,” a message obtained from one of the Datacenter AB representatives reads.