Some fairly simplistic calls for the government to not give bailouts to companies using tax havens are continuing. I wholly understand the sentiments but the issues are complex, not least because just what a tax haven is has been an issue subject to much dispute. I have written two books on the issue and can honestly say the answer is 'complicated'. The rights of employees have also to be respected as well: there is no one issue in play here.
The Tax Justice Network has recognized this and has written a good five-part test on bailouts for companies using tax havens. This is it:
- Does the corporate group have one or more subsidiaries in one of the top 10 ranking jurisdictions[2] on the Financial Secrecy Index or the Corporate Tax Haven Index?
If so, the corporate group must publish full country by country reporting by the end of 2020 in line with the Global Reporting Initiative's standard[3] to demonstrate presence in the jurisdiction is for legitimate business activity and not for the purpose of reducing tax obligations elsewhere. Otherwise, the corporate group should be disqualified from receiving a bailout. If not, policymakers can proceed to the second check.
The Tax Justice Network has urged governments to rely on the Financial Secrecy Index and the Corporate Tax Haven Index instead of national or regional tax haven lists like the EU's non-cooperative blacklist as the latter have repeatedly proven to be too political and weak to be effective in tackling tax abuse. All iterations of the EU's blacklist since the first list in 2017 have never covered as much as 10 per cent of the world's financial secrecy services.
- Has the corporate group participated in any financial scandals or tax scandals such as the LuxLeaks, Cum-ex or been judged to have received illegal state aid? If so, the corporate group should be disqualified from receiving a bailout.
- Has the corporate group published online its most recent accounts for all legal entities in the group, including full country by country reporting in line with the Global Reporting Initiative's standard? If not, governments must make it a condition for bailout recipients to do so by the end of 2020. If the condition is unmet by the deadline, the bailout money should be returned.
- Has the corporate group published information on who the beneficial owners and legal owners are of all its legal vehicles and the complete corporate structure of the group? If not, governments must make it a condition for bailout recipients to do so by the end of 2020. If the condition is unmet by the deadline, the bailout money should be returned.
- Has the corporate group committed to employee protection and to no shareholder extraction until rescue loans have been paid back in full and corporate group has returned to profitability or become insolvent? If not, the corporate group should be disqualified from receiving a bailout. Bailed out companies, at the very least, must commit to not firing employees that need to be self-quarantined or hospitalised and to pay all staff a living wage at minimum until full repayment of bailout funds or insolvency of the company. Bailed out companies must not distribute any dividends, buying back their own share capital and converting other shareholder equity reserves, such as share premiums, into bonuses for shareholders until the company has paid back in full its rescue loans and returned to profitability.
I think that building a test for bailouts around these ideas, which include programmes for positive reform as well as simple blanket bans, makes sense.
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Its a pity that we couldn’t ask this questions of organisations even if they are not requesting bailouts.
Maybe we can use these tests in procurement policy
Sadly, we could do that when we leave the single market
But we won’t, of course
I would make #4 a condition from the outset…
Hmm. What are the top 10 countries in the Financial Secrecy Index and the Corporate Tax Haven Index?
The former (2020 version) seems to be Cayman Islands, USA, Switzerland, Hong Kong, Singapore, Luxembourg, Japan, Netherlands, BVI, UAE. (Guernsey at 11, UK at 12.)
The latter (2019 version) seems to be BVI, Bermuda, Cayman Islands, Netherlands, Switzerland, Luxembourg, Jersey, Singapore, Bahamas, Hong Kong. (Ireland at 11, UAE at 12, UK at 13.)
So a corporate group is disqualified if it has operations in say the US, or the Netherlands, or Japan, and declines to publish a “full” country by country report. But neatly, the UK just escapes from both, at 12 in the first and 13 in the second…
In effect, country-by-country reporting is required
I see no problem with that…
I propose a sixth test. Does the group have a clearly and precisely dated plan to remove itself from its tax haven status, and domicile all its activity within the reach of HMRC? The bailout should be dependent on a charge over assets that can actually be executed by HMRC if it fails to transfer its domicile by the proposed date, or such date as agreed with HMRC.
I make this proposal, which I appreciate is awkward, ony because we really need to be making clear that the purpose is to eliminate tax havens altogether; and although I understand the problems, not merely catering for a future that extends their lives, or makes them comfortable.
No half-measures. No fudges. No soft thinking. After all, our opponents never indulge the thought.
I like it
There’s only one test that needs to be applied:
Are you a UK company?
If you are registered in a foreign country it’s the duty of that foreign country to protect you.
I am afraid it simply does not work like that in tax
A company registered in another country can conduct all its affairs here
So if it’s registered in another country, it’s a foreign company and none of our business and we have no duty to bail them out when they are in trouble. If Virgin Airlines (Virgin Islands LPC) goes bust, it’s the responsibility of the Virgin Islands government to provide any help, not the UK government.
As 8 explained, if it does everything here and pays all its taxes here – and that is possible – that makes no sense
But it does have to prove it
While I don’t claim to have a great grasp of such things and do think the needs of employees to be employed is important, it’s also fair to say that a lot of the companies looking to be bailed out are from industries that fail the climate change test. Easyjet, for example, providing cheap flights so people can gad about the world, is really not a business model that helps with mitigation. I would therefore, and maybe simplistically, say that it is a) not unreasonable for company owners to dip into their millions if they want to keep their companies afloat (like those of us with small businesses are already doing) and b) that easyjet and similar company employees would be better off employed doing something that helped to build a low carbon economy and that the money would be better used reskilling them and setting up companies to do just that. Sure it may be complex and need some clever thinking, but isn’t that what top civil servants get paid loads of money for? All this signing up to climate emergency declarations is just more hot air unless action is actually taken and this is a perfect opportunity to do so. When life gives you lemons, and all that.