GREG BAILEY. COVID-19 and Tax Havens

Apr 28, 2020

Now that three governments in the EU have announced that during the COVID-19 crisis they will give no government funding to companies registered in tax havens, we wait to see if this prohibition is continued after the crisis is over. Will it be extended to countries beyond the EU, especially those in the Anglo-Celtic sphere?

It has been reported since April 20, mainly in the financial press, that the Danish and Polish governments have blocked companies who are registered in tax havens from receiving financial aid during the COVID-19 crisis. “This is the first time EU states have really stood up to the massive transborder operations of the likes to [sic] Amazon, Google, Starbucks and so forth.” And a few days later the French finance minister said, “If a company has its tax headquarters or subsidiaries in a tax haven, I want to say with great force, it will not be able to benefit from state financial aid.” Additionally, in Denmark and France companies receiving aid are not to pay dividends or engage in share buybacks in 2020 and 2021. Whether this was done independently of each other is not clear, and it will be of great interest to see if other EU countries follow suit.

It has been estimated that the global corporate tax system loses an estimated US$500 billion to avoidance annually, over three times the NHS budget,…” Whilst this has long been known, most governments, especially those in the Anglo-Celtic world have made some noises about tax havens, whilst doing very little to close them. The Australian government has been warned repeatedly about the activities of Google, Amazon and Netflix, but has substantially ignored the large mining companies–mostly foreign owned that pay minimal tax and use tax havens. Similarly, we might also mention the three largest cruise ship companies, who are all registered as corporations in tax havens in Panama, Liberia and Bermuda.

Apart from various pressure groups, especially in the UK–such as the Tax Justice Network and Oxfam–, it is really only the EU that has taken a strong stand on corporations trading in their countries paying minimal tax because they are registered in tax havens. The EU has recently published its EU list of non-cooperative jurisdictions in order to help “EU member states deal more robustly with countries that encourage abusive tax practices.”

This move to open up the secrecy associated with these havens has been going on for some years now. However, it appears to be the economic crisis prompted by COVID-19 that has motivated some EU countries to move independently of the EU itself, if within the EU’s larger framework of antipathy to tax havens. Yet some of its own members–Ireland and the Netherlands, in particular–fall into the category of tax havens. The problem is, of course, that the EU only covers a certain number of countries in a grouping that seems increasingly fragile since the GFC, and made more so since Brexit

Some questions rise out of these actions: have these three countries made these decisions out of desperation, and will other countries within and on the borders of the EU follow with these bans? Will the bans continue after the COVID-19 virus is considered to be under control or as being sufficiently under control for many of the social-distancing regulations to be relaxed?

If publicized properly I am sure such bans will have considerable popular support and at the moment it is going to be very difficult for the vested interests–the corporations–and their representatives–the four big accountancy firms–to make much of a counter argument, not that there is one. The political response in most countries, where COVID-19 has become the fundamental factor in driving government action, is partially designed show to most people that the governments, at least for the moment, have overcome sectional interests in favour of their total community, whereas corporations represent sectional interests writ large.

One might have expected this move from a Scandinavian country where social welfare usually trumps corporate greed. The Scandinavian countries value social cohesion much higher than they do individual wealth, and even in France and Poland the attitudes of these kinds of corporations are seen as antithetical to the welfare of the country as a whole.

We can only hope that the action of these three governments will generate a larger debate about the role of taxation in governance. Under neoliberal practice and ideology, taxation is simply seen as restraint on growth, an externality distorting the true functioning of the market.

Moreover, if such a move was taken up by governments in the Anglo-Celtic world it would not only palpably help government finances, it would also mark the beginning of a new role for government, one that is not so divisive and would markedly reduce the inequities that have been increasingly so dramatically. We must bear in mind that neoliberalism in the manner in which it has developed historically–though not in the eyes of its original mid-twentieth century theorists–has become a system of corporate welfare, with big business, big sport and big government all intertwined under a corporate form of organization and distribution of the spoils.

In the Australian context some very detailed reports have been published on tax havens and tax avoidance over the past several years. Michael West has done excellent work on the subject as it relates to Australia, where he notes that many of the corporations taking advantage of tax haven are foreign based mining multi-nationals.

Will Australian governments begin the process of taking the axe to companies registered in tax havens? Not if we follow the USA and Great Britain, to whom we are almost joined at the hip. Neither can be expected to take any action of the kind taken by the three European countries.

It is unlikely to occur under an LNP government who will simply say we need these large corporations to bring in much needed investment, a questionable argument in itself given how much income in Australia is made through financial vehicles and land speculation. Perhaps if the Henry Report of 2009 was used as a basis and the Australian people were told how important taxation is as a redistributive force in society then governments might be forced to thoroughly examine the secrecy of tax havens and establish substantial resource rent taxes as in Norway. The increased money could then be transferred to the bottom level of society in order to make a much more cohesive society. The time is never better than now when there is so much public good will towards the government acting in the broad interests of all of society.

Greg Bailey is Honorary Research Fellow in Asian Studies, School of Humanities and Social Sciences, La Trobe University.

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