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Tax Exiles Risk Being Marooned When Europe Doles Out Virus Aid

April 29, 2020, 3:00 AM

Tax-dodging corporations with outposts in offshore havens risk being left high and dry when European nations hand out vast bailouts to companies devastated by the Covid-19 pandemic.

A growing number of countries said they may exclude companies based in the Cayman Islands, Panama, the U.S. Virgin Islands and other states on a European Union blacklist of “non-cooperative jurisdictions for tax.”

Upholding its Nordic reputation for fair play, Denmark has taken the lead, prompting politicians across the 27-nation EU to call for similar action as public impatience grows over rescues going to tax-dodging companies.

“You cannot ask the Danish society for help one day only to turn your back on the community the next and send your money to a country on the EU’s list of tax havens,” the Nordic nation’s Business Minister Simon Kollerup said in an email. “It is simply not fair.”

From manufacturing to banking, the use of havens has become a central -- and legal -- part of business models. But the debate is now echoing Europe’s response to the sovereign debt crisis: the more governments open up public purse strings, the more pressing the questions they face about who gets bailed out by taxpayers.

“Even with the EU’s very limited list, some of the biggest and most high profile European companies would fall foul of a bailout approach that barred tax haven subsidiaries -- and mostly because of their use of the Cayman Islands,” said Alex Cobham chief executive officer of the Tax Justice Network, a tax advocacy group.

Cobham said 2017 research with the CORPNET group at the University of Amsterdam identified tax-haven subsidiaries in dozens of companies from Siemens AG to HSBC Holdings Plc, and from Anheuser-Busch InBev SA to Fiat Chrysler Automobiles NV. Fiat and HSBC declined to comment and the others had no immediate response when asked by Bloomberg about their current tax arrangements.

  • Meanwhile, French Finance Minister Bruno Le Maire toldFrance-Info radio last week that if a business or its branches are based in a tax haven, “I want to say very firmly: they cannot benefit from help from the state treasury.”
  • Poland’s Prime Minister Mateusz Morawiecki told the parliament earlier this month he was also planning measures to curb aid to tax havens, which “mean a cut in revenue for all countries, both the rich and poor.”
  • Elsewhere, Sweden and Austria are weighing similar measures.
  • In Britain, which left the EU weeks before the pandemic took hold, a plea by billionaire Richard Branson for a government bailout of his U.K.-based Virgin Atlantic airline stoked anger. Tabloid newspapers demanded that he “flog” his island retreat in the Caribbean.

While such emotions seem understandable, tax experts warn that penalizing firms using offshore structures may have a limited effect in practice -- and could even miss far worse cases of tax dodging closer to home.

“The pandemic is clearly being seized on by people as a reason for doing what they’ve always wanted to do,” said Dan Neidle, a tax lawyer at Clifford Chance LLP.

“This is completely the wrong approach. If there are structures involving tax havens that we think are unfair, then we should close them down, we shouldn’t be withholding aid to companies,” he said.

‘Virtue Signaling’

Aid bans risk being “virtue signaling” in making a point about taxation when it would be more effective to say there is a clear quid pro quo to a bailout, said Judith Freedman, a professor of tax law at Oxford University.

Even though the Danish ban would affect some 70 businesses mostly based in the Cayman Islands, it “appears rather toothless,” said Yvette Lind, a tax law assistant professor at the University of Copenhagen.

That’s because a large part of the Nordic nation’s tax losses are to nearby Ireland, Luxembourg and the Netherlands, more famed for its canals than palm-tree-lined beaches.

The Dutch government has frequently stated that preventing the country from being used as a tax conduit is one of its priorities.

Coronabonds Controversy

But the point isn’t lost on Italians who failed to persuade the Netherlands to accept so-called coronabonds, or joint debt issuance, as the lockdown aimed at containing the spread of Covid-19 brought their economy to a near-standstill.

“It’s difficult to expect solidarity from the Dutch, who have set up a tax haven,” Pier Paolo Baretta, undersecretary at the Italian finance ministry, said in an interview with Bloomberg on April 15.

The Tax Justice Network’s Cobham said “a more serious list including EU tax havens like the Netherlands, for example one based on our Corporate Tax Haven Index, would bring even more companies into scope.”

But while EU governments can set some conditions on bailouts, they need to comply with rules that allow companies to do business across the bloc -- which would prevent a ban on companies based in other EU countries.

What can be excluded are “companies based in tax havens as defined by the relevant EU legislation and companies with a long-term debt” to tax authorities, the European Commission said.

Cobham said governments should still push for greater tax transparency.

Taxpayers, he said, could then be sure that recipients of money that could otherwise be spent on priorities such as the health service “have truly changed their ways.”

--With assistance from Nick Rigillo, William Horobin, Karin Matussek, Ruben Munsterman, Ewa Krukowska, Love Liman, Boris Groendahl, John Martens, Charles Daly, Zoe Schneeweiss, Nikos Chrysoloras and Wout Vergauwen.

To contact the reporters on this story:
Aoife White in Brussels at awhite62@bloomberg.net;
Stephanie Bodoni in Luxembourg at sbodoni@bloomberg.net;
Jonathan Browning in London at jbrowning9@bloomberg.net;
Morten Buttler in Copenhagen at mbuttler@bloomberg.net

To contact the editors responsible for this story:
Anthony Aarons at aaarons@bloomberg.net

Peter Chapman, Richard Bravo

© 2020 Bloomberg L.P. All rights reserved. Used with permission.

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