Category Archives: Taxation

Poland Follows Denmark in Blocking Tax Haven Companies from Coronavirus Relief

Source

sputniknews.com

April 21, 2020

In all, the global corporate tax system loses an estimated US$500 billion to avoidance annually, over three times the NHS budget, or roughly equivalent to the entire Gross Domestic Product of Belgium. Tax havens linked to the UK are responsible for around a third of the world’s corporate tax avoidance risk.

The government of Poland has followed Denmark in blocking companies registered in offshore tax havens from reaping coronavirus financial relief funds.

On 18th April, Stockholm announced companies which pay dividends to shareholders, buy back their own shares or are registered in offshore tax jurisdictions won’t be eligible for any state aid programmes, intended to ease the financial burden on firms suffering from the Covid19 lockdown.

“Companies seeking compensation must pay the tax to which they’re liable under international agreements and national rules. Companies based on tax havens in accordance with EU guidelines cannot receive compensation, insofar as it is possible to cut them off under EU law and any other international obligations,” the Danish finance ministry said in a statement.

Poland has now included similar caveats in its own state bail-out schemes – in all, PLN 25 billion is available to companies operating in the country, but they must pay tax there to benefit.

“Companies usually fail not because of decreasing profits, but in a situation when there is no income. We must respond quickly and input this missing liquidity into the market and compensate for it as soon as possible. Let’s end tax havens, which are the bane of modern economies,” Polish Prime Minister Mateusz Morawiecki said at a press conference, unveiling the relief scheme.

No Tax Please, We’re British

The moves have led to calls on social media for similar restrictions to be added to state bailout packages in the UK. In 2019, the Tax Justice Network found the country was by far the world’s biggest enabler of corporate tax dodging, assisting in the funneling of hundreds of billions of dollars away from state coffers.

Moreover, it found that of the top 10 jurisdictions allowing multinationals to avoid paying billions in tax on their profits, four were British overseas territories. Topping the list was the British Virgin Islands, followed by Bermuda and the Cayman Islands – all British overseas territories. Jersey, a Crown dependency, was seventh while the UK itself came 13th.

Other countries in the UK network, including Turks and Caicos Islands, Anguilla, the Isle of Man, and Guernsey, also scored highly for corporate tax dodging.

Tax the rich? It might not be enough

We all have to adjust our instinctive horror of taxing wealth if we are to survive the economic fallout of coronavirus.

The Holland America Line cruise ship MS Zaandam pictured, where passengers have died on board, as the COVID-19 outbreak continues, in Panama City, Panama March 28, 2020 [Erick Marciscano/Reuters]
The Holland America Line cruise ship MS Zaandam pictured, where passengers have died on board, as the COVID-19 outbreak continues, in Panama City, Panama March 28, 2020 [Erick Marciscano/Reuters]
 

The coronavirus pandemic has triggered three crises in parallel: The epidemic itself; a global recession that the International Monetary Fund (IMF) predicts will be bigger than the one that followed the Wall Street Crash of 1929; and new geopolitical tensions, with Trump blocking IMF aid to Iran and China, and defunding the World Health Organization (WHO).

Only one thing is certain: When it is over, most countries will be deeper in debt and there will inevitably be calls for yet more austerity.

On the eve of the pandemic, the combined debts of all the governments, companies and households in the world totalled 322 percent of global GDP.

If the global economy now contracts, while governments spend undreamed-of amounts to support businesses and families, we will be in uncharted territory: there will wartime levels of government debt which, for many middle-income countries, will become unsustainable, alongside squeezed household finances and bankrupt companies.

Once things stabilise, there are only four ways to reduce a debt burden of this size, and none of them look pretty. High inflation can erode the value of the debts – but that means eroding the wealth of the middle class, as well as the rich.

If you are a developed country, with its own currency, you can get the central bank to buy the debt – and that has already started – but you risk the value of your currency falling as a result. Countries that cannot meet their debt repayments can ask for them to be written off – as happened with Greece between 2011 and 2015 – but that only transfers the pain to banks and savers in other countries.

Which leaves austerity. Austerity means making cuts in public spending in order to rebalance the books. The UK, for example, slashed government spending from 46 percent of GDP to 39 percent over a decade after the global financial crisis of 2008. In the process, it destroyed the resilience of its health service, depleted its armed forces and reduced policing and local government services to a bare minimum, with the result that it looked completely unprepared for the coronavirus.

Austerity programmes imposed after 2011, when numerous Eurozone countries had to be bailed out by the IMF and the European Central Bank (ECB), raised unemployment in Greece to 25 percent, and in Spain to 22 percent, triggering social turmoil.

Repeating this, with another 10 years of overcrowded doctors’ surgeries, uncollected rubbish and underpaid nurses and social care workers is, given the public mood in the UK and across Europe, a non-starter. So, what is the answer?

From the left the answer comes, as always: “Tax the rich”. But it is not so easy. First, because so much of the wealth of the top 1 percent is held offshore.

According to research by lawyer James S Henry, companies and rich individuals could be sheltering up to $32 trillion from the tax authorities in tax havens like Panama, Switzerland and the British Virgin Islands.

The year 2019 saw multilateral institutions like the IMF and OECD call for an end to the principle of treating multinational companies as a series of separate national entities, with the power to account away their tax obligations via subsidiaries based offshore.

But calling for stuff is not the same as doing it. And the COVID-19 crisis has, so far, actually weakened the leverage of multilateral institutions. Trump’s decision to remove funds from the WHO, and to block the IMF from helping Iran and China, for example, reflect a trend to make every part of the global order a geopolitical battleground.

The second reason it is going to be hard to rely on taxing the rich alone is that – as the French economist, Thomas Piketty, has shown – the 21st century economy is increasingly geared to generating wealth from assets, not operating profits. Today’s economic elites typically inherit their wealth rather than work for it.

If you have lived through a house-price boom, you will have heard astonished homeowners saying: “My house is earning more than I am.” If your wages are $30,000 a year, but your house rises in value by more than that, it sounds literally true.

Well, for the super-rich, and for banks and other financial companies, that experience is normal. Why innovate and take risks in the real economy when your existing financial assets can “earn” more than you could make by doing so?

Though growth is low, and productivity is poor across the world, the repeated decisions by central banks to pump free money into the financial system – through interest rate cuts and quantitative easing (where they effectively print new money and buy up government debt with it) – creates a one-way bet for anyone who has enough money to seriously invest.

When the dot-com boom collapsed in 2001, the US Federal Reserve slashed interest rates; when the subprime property boom collapsed in 2008, it did the same again and began printing money. Now, with coronavirus – you guessed it – interest rate cuts and free money for those who already have it are the order of the day.

That money – totalling $20 trillion and now set to rise again – is not simply being used to keep airlines running and hi-tech automobile factories from going bust: it inevitably boosts the value of assets too.

Piketty’s solution is to tax wealth on top of the actual incomes of the rich. In a country like the UK, that could mean taxing every stock market transaction; slapping extra taxes on the owners of speculative luxury apartments and second homes; heavily taxing inheritances; and closing the loopholes that let families move their wealth offshore. But when left wing figures like Jeremy Corbyn or Bernie Sanders have suggested doing this, the powerful finance sector lobby has mobilised against them.

At root, many ordinary people are hostile to raising taxes. They see their employer as a lifeline, economic stability as fragile, and are wary about anything that might make their company move to China or the value of their home currency come under threat. And after 40 years of being told to see themselves as acquisitive, competitive individual atoms in a chaotic marketplace, some people are alienated by the very idea of collective investment for the common good.

After the COVID-19 pandemic, it is inevitable that we will see states play a bigger part in economic life: propping up airlines, airports, railway companies and insurers so that life can return to normal. Central banks, which are making extraordinary moves to buy up government debt, will be even more powerful than before. If so, we need a regime change of the mind, too.

Voters need to understand that healthcare services and care homes are struggling because too little taxpayers’ money has been spent on them for decades. We will all have to pay more tax, but rich people and large corporations need to bear the biggest burden.

To achieve that we will have to aggressively shut down the loopholes in the global system, bringing trillions of dollars-worth of wealth out of tax havens and back onshore. We need, in short, to rediscover our belief in collective action.

But I doubt a revolution in attitudes to taxation alone will enough. The long-term stagnation in profits, interest rates and growth are a feature of, not a glitch in, the free market system. To kickstart the transition beyond a carbon economy, and to redistribute wealth downwards – through comprehensive health and welfare systems – you would need to deter rich people and companies from hoarding money at the scale they currently do.

Higher inflation, controls on the cross-border mobility of capital and higher real wages are the traditional ways you do this. And let us not forget – horrifying though these measures sound to today’s elite – they were the basis of “30 glorious years” of growth and innovation after the Second World War.

Right now, conservative politicians all over the world are being forced to take drastic action that goes against every theory in their textbooks. So, we need to rewrite the textbooks and reset the economic model.

The views expressed in this article are the author’s own and do not necessarily reflect Al Jazeera’s editorial stance.


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