As was noted in some media yesterday:
Denmark and Poland are refusing to let companies registered in offshore tax havens access financial aid from their coronavirus bailout packages.
The Danish finance ministry on Saturday extended its bailout program into July but stressed that firms based in tax havens would no longer be covered.
"Companies seeking compensation after the extension of the schemes must pay the tax to which they are liable under international agreements and national rules," a translation of the statement said.
Many would seem to agree that this is fair.
The situation is contrasted with that of the UK where Richard Branson continues to seek financial support for his airline, with its British Virgin Island links.
I have made it clear that I think it is reasonable for the government to apply conditions to the bailout funding it supplies including:
- An end to tax haven links;
- Publishing country-by-country reporting for tax;
- Better tax governance to end use of any known tax avoidance mechanisms;
- Adopting better environmental standards;
- Setting net-zero carbon targets;
- Recognising unions;
- Tackling gender pay inequality;
- Paying real living wages.
I think society has a right to expect a return that is more than just financial from the support it supplies.
What do others think?
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Yes, of course companies based anywhere in the world, based in tax havens or based in not-tax havens should be eligible for bail-outs if their elected governments want to offer them.
If the BVI wants to bail out Virgin, Switzerland wants to bail out SSE, or Guernsey wants to bail out Park Plaza Hotels, then that should be entirely up to them.
I agree with all your suggested bailout conditions. Keep up the great work.
I think if Branson’s got an island he can put up as collateral then he should be dealing with banks on a standard commercial basis, not begging for handouts from government. What is this, socialism? Fie upon it 🙂 And yes, any govt support ought to be conditional, and not upon their getting cushy board positions after politics either.
If companies want to be based in Virgin Islands of the Isle of Man, Jersey, etc, then that’s up to them. However, when crisis occur (and with a financialised economy they are guaranteed) they should be limited to receiving a bail out from the state where they are registered. Any bail-out, or assistance should absolutely come with strings attached. That’s how it works for state benefits for individuals(for the most part). Why should it be any different for companies?
The Polish and Danish response is simple as you have avoided tax in the past so you get no bail out now. Your concept of demanding conditions on future behaviour sounds reasonable but what if they breach the new rules down the line such as returning to tax havens or not meeting their carbon footprint targets? And monitored for how long? 5, 10, 50 years? In reality it would be reversed after a few years by any economically right-wing government as too restrictive on businesses and too costly to monitor.
I can make them pay: simple forfeiture of 25.1% of share capital to the government if conditions are breached should solve the problem…
That’s just a convertible loan condition
I really, really like this. I assume the ‘trigger’ for the implementation of the convertible is; inter alia, that the company fails to remove itself from the protection given by the tax haven? Why not 29.9% incidentally, or am I out of date?
I seem vaguely to recall that it was suggested the vulture capitalists in London (back when), loved to insert clauses in their agreements with young companies looking for capital that did not just protect the vultures, but in effect almost ensured the inevitable breach, as their ‘involvement’ unfolded (it did not require a cynic to observe that they perhaps preferred a breach to happen) ………..
The expertise to draft such clauses is easily available
Dammit, I have written many a convertible clause in my time for all sorts of reasons…
This is so obvious and so easy, why isn’t it being done?
What is really good about this now is that the argument was made by Mervyn King either on C4 news or Newsnight (somewhere else a day or so ago?) when asked about giving bail-outs to companies registered in tax havens seemed to be that while the principle of withholding might be right, because the businesses may be large employers, now was not the time to do this. Of course this is precisely the time to do it; just draw up the agreement, with a convertible loan – and just for once, the Government is in the position to act with the speed and effectiveness of a hedge find manager or vulture capitalist. Why? Because it is only the government that has the money. Or rather the only source prepared to take all the risks. Period.
This solution needs to be communicated fare and wide. It is unanswerable.
He would argue that the principle was right but there was never a time to do this…..
He is not known for his principles
Where are the political opposition when anger over this misuse of public money is considered .is the fading hope of new Labour leadership gone already?
Universal basic income and restructuring of tax system
Thanks for your input Richard.
It is disappointing to observe that hiding behind the “Under New Management” sign, is hiding the caveat “But Recommitted to the Failures of Orthodox Thinking”.
As Rachael Reeves, for example, made clear on one occasion in the distant past, “We are not the party of the unemployed ( or benefit claimants).”
That, I assume, will be the underlying tenor of most of what they will say on the economy, and so the likes of Branson and his corporate ilk
will get a bung and a free pass.
Enduring commitment to the sensible and progressive, and indeed popular economic policy ideas of the previous management cannot be guaranteed.
And where the very much needed Green New Deal would upset vested financial interests, forget it.
Or maybe I’m just an old cynic……
I’d agree completely.
Why not make it conditional on the state having an equity stake in the business as well.
I agree with that : make the loans convertible as equity stakes to enable conditions to be enforced
And why not the employees too? They are often amongst the first to suffer when a business go belly up.
The UK Government could shut down many of these tax havens at a stroke. It’s time it did. Companies and individuals move these secrecy jurisdictions for one main purpose: to avoid their obligations to pay tax, disclose information and abide by other troublesome regulations in the countries in which they originated and in which they mainly do business, while at the same time enjoying all the benefits provided by States such as the UK.
If he wants a bail-out (he calls it a loan) then let him move the company (all 400 bits of it) back to the UK.
There could be a silver lining to COVID19 and the effects of government imposed lockdown. All businesses should be reshaping their activities to protect the environment and meet carbon neutral targets, and all should all be paying UK taxes in full and treating their employees decently. This extraordinary moment is our chance to make businesses behave responsibly. All your 8 conditions for govt bailout are right and in fact essential.
I’m recalling when RollsRoyce went bust in 1970, were bailed out and the government retained a ‘Golden’ share to prevent foreign acquisition. A share like that could potentially be used to influence airline behaviour.
Precisely – with massive conditions attached to it
They were common….
Thatcher believed in them
We shouldn’t be bailing out foreign companies *because they are foreign companies*, not because of anything to do with the legal system in the country they are registered in. It’s the duty of the foreign country to bail out foreign companies.
No. The Govt should certainly follow the Danish and Polish model but they won’t as many offshore companies are donors.
HC-One is Britain’s biggest care home operator – registered in the Cayman Island & Jersey accounts filed at Companies House shows that HC-One paid its investors two cash dividends of £42.3m in 2017 and £6.2m in 2018.
HC-One appears to have declared a loss every year except one since its creation in 2011. It has paid no UK corporation tax in that time, and instead received net tax credits of £6.5m since a reorganisation in 2014.
https://www.ft.com/content/c0e37072-7243-11e9-bf5c-6eeb837566c5
This example is sufficient to demonstrate we say NO to offshores receiving bailouts.
Any State support can only be with conditions – it’s what IMF, WB, DFID, EU demand in their Aid programmes to poorer States. If not for Branson/Virgin, with assets bigger than many countries in receipt of Aid, nor for those States.
Garrett Hardin’s ‘Tragedy of the Commons’ is being demonstrated for what he described – take what you can from the Commons, privatise, leave the wreckage to others to rebuild. For the cattle herders in his essay, it was rain that kept the grazing good. For Branson in our current example, the ‘rain’ is central bank money creation, and his philosophy is purely extractivist.
Elinor Ostrom’s ‘Management of the Commons’ demonstrates the fallacy of Hardin’s miserable, misanthropic opinion. He acknowledged her corrections. The ‘orthodox’ neoliberal economics with its belief in perpetual growth, resource extraction cannot countenance or incorporate Ostrom’s Nobel winning analysis. It prefers to continue with other Nobel economics laureates like Friedman.
How many economics curricula, in school and university, start with a study of ecosystems, complexity and Ostrom’s work?
Agreed entirely Robin
Rentierism run wild
The freehold of the homes of millions of UK taxpayers are held by offshore companies in secrecy jurisdictions. Many were purchased with funds borrowed from banks that are now majority govt owned. The freeholders’ sole interest in many if not most cases is strictly financial – – owning & if possible sweating the assets for easy returns, usually via conflict of interest scams (appointing a managing agent to take commissions on as much as possible, insurance, window cleaning etc. – – the Trump family business model as exposed by the NYT).
But what happens when cladding turns out to be unsuitable? The freeholders refuse to pay & solicit govt bailouts. The solution is simple. The govt should require the banks to call in their loans, nationalize the freeholds, outlaw new leasehold tenure, and begin a push for the adoption of Commonhold. Leasehold tenure is a feudal institution that has been abolished everywhere that inherited it from English common law except for England and Wales.
maybe the Danish can do this but we might find it problematic?
for instance aren’t a lot of our PPI schemes registered in tax havens?
maybe so much of our economy is so intertwined with tax havens that doing the right thing could turn out to be an act of self harm,
it’s interesting that the Danish should take this view because I met some Danish relatives who were in banking and got the impression that they were deeply comfortable with all things neo-liberal & globalised,
maybe they’re not as exposed to tax havens as us?
Actually, I think they have a real tax haven problem…
Might of had a chance of success under a Corbyn government.
Who really believes these reasonable condition were even thought of in the current cabinet?
At least the ultra-reactionary Polish government has done something good for a change. Presumably they do not have such super-rich oligarchy as the UK
Time to write to our MP’s – they won’t do anything because they want to, but are motivated by public sentiment. if each of us on here, wrote to both our local MP and others that might have an interest, then it can help.
Possibly also time for Led by Donkeys campaign to start some more posters.
BTW I think my mate Richard Branson offered to put up Necker Island as collateral – he won’t of course but it does him no harm PR wise.
Final thought – we are living in times of the unthinkable and so it may just be possible to get some of this into the public domain. Tax havens are a very simple message for most folk to get hold of.
It is all over twitter
But attention and pressure would be good..
Linking the benefits of operating in a country to ethical and responsible behaviour and most of all to fairly supporting through tax the “infrastructure” that they benefit from seems to be a no-brainer to me.
Reminds me a few years ago of an entrepreneur’s convention in America where the entrepreneurs were celebrating in an orgy of “me” how clever and successful they were. Obama had to remind them that a key ingredient of their success was due to the “infrastructure” created by govts and society in the countries they operated.
This definitely should be the case for access to bail-out money and should be progressively insisted upon for on-going access to our markets.
My view is this:
The most important thing is to protect jobs but also recognise that Covid-19 is one of those ‘acts of God’ that periodically bites mankind on the arse and affects everyone through no fault of their own.
And this will cause panic in the pathetic market system we have (markets should just be suspended now in reality – why it is acceptable for analysts to still rate companies in a crisis is beyond me – even well ran companies who are losing revenue through no fault of their own are then subjected to the financial sector valuing them and is just not fair at all, and only appeals to the vultures who want to pick up companies on the cheap and whom should not be allowed to operate either).
So, the first concern of Government is to get the business relief money out there as quickly as possible to do its job (also, get rid of the pathetic 80% rule). The quicker and easier this process is the better.
However – and this is key to me – I would then check up on the companies AFTER the crisis, and then use the help that they received as leverage to deal with tax evasion, zero hours contracts etc., using a reinvigorated, re-manned HMRC. And I’d make sure that the public knew about it too.
For me it is all based on the concept of sovereignty. Government should tell business that it has printed sovereign pounds to help them, and now it is using its sovereign power to improve their behaviour for the good of the nation.
So, ignore the off-shore bit initially, but pursue the benefits after – that is I’m afraid how I would do it. Get the leverage in there first.
I do not want a re-invigorated HMRC – they end up attacking the low hanging fruit, generally the little guy who cant afford proper representation.
I would welcome a well trained HMRC. Most of the talent has retired – officers who knew the tax rules and could understand proper reasoned argument, ones who were prepared to concede where a difference of opinion was valid and something to be worked through. People who understood discretion and courtesy and who also knew when to push very hard. The Home Office and DWP also used to have such people and we are all the poorer for their leaving, or in many cases being relegated to work that doesn’t utilise their skills.
And, I don’t think HMRC are much bothered by Tax Havens – something the Brits set up, way back, as a way of making Crown Dependencies and Territories somewhat self financing. A bit like the Non-Dom arrangements that would bring wealth to the country – all long past their sell by date (they stank almost as soon as the ink was dry. The ordinary folk in those countries don’t see any benefit from the money and tax washing.
Let us focus on tax havens as a simple message that can cut through.
You are entirely right on HMRC past and present
Re-invigorated, re-trained, re-directed, re-purposed – whatever Prentii – my proposal is actually no different to yours in intended outcomes – HMRC has been undermined by the Tories too, not just the NHS – if you want to go after people, if you want justice, you need the resources as well as the remit.
I hope that’s clear – let’s try not to turn into the Labour party whilst we are here, eh?
Whichever way this issue is tackled, it will re resisted in some way.
I agree,the UK is an active defender of off shore tax evasion in its jurisdiction. The City of London and Jersey is a major beneficiary too.
I also would add, the probelm with HMRC and other national tax collection agencies is that they are largely powerless against sub groups of foreign corporations operating in their jurisdiction. This allows flagrant tax avoidance schemes to carry on right under the tax office’s nose. The scheme usually enatailing the head group loaning the sub-group money at vastly inflated inerest rates that conveniently eat up all the sub-groups national profits,end result is no tax to pay or even a tax credit. We need to stop ineterest rates being tax deductable. But the right of “free movement of capital ” is ingrained in global laws,even backed by the EU. HMRC challenges in the past have failed to stop this.
The other problem is corporations being allowed to book sales/revenue in low tax regimes ala Google booking UK sales in Ireland and paying lower corporation tax there.
Fundamentally hmrc do not pay enough to attract the talent required
A tax director of a big 4 earns at least 100k, if you had a choice which career would you choose, doing the right thing for society is all well and good until you have to compare that with the financial reward on offer
I think you’ll find they earn more than that….
MY answer would be a straight ‘no’, however, for the sake of employees and any 3rd parties reliant and the dodger. We need to learn from the banking bailouts to ensure that any of the companies we bail out now don’t simply fart in out faces as the banks did, and continue to do.
I like your bullet points of conditions.
The logic is sound but I think more clarity will need to be given about the term ‘tax haven’.
For example, its not unreasonable for certain businesses to have commercial reasons for entities in tax havens (airlines or travel groups being an obvious example).
Should the term also be extended to countries with a comparatively low tax rate (say less than 75% of UK rate to mimic the CFC rules) or those that have provided a tax holiday?
Should it also be extended to businesses held by trusts, as well as corporate entities, in these countries as well?
The ability of tax legislation to deem is a great thing. Deeming all companies registered in U.K. controlled tax havens are resident in the U.K. from 1 April 2020 would be a great help to companies like Virgin Atlantic, surely they would welcome it. I understand people’s desire to be punitive but UK residents who pay U.K. payroll taxes work for these companies and they need support for their jobs too. Converting loans into equity would be a great help too. Obviously any company wishing to migrate after deemed residence would have to repay any state help as an exit charge.
If a company is registered in a tax haven and makes no contribution to the UK’s ability to fund vital services, they should not be getting any ‘bailout’. Those who don’t pay, don’t get.
I know it’s a side issue but there are winners as well as losers from the current situation. If the losers are going to get bail outs, should the winners not suffer a windfall tax? Who are these winners? I’m not going to name names but I read that the world’s riches man (let’s call him Jeff) is USD 25 billion up since the start of 2020!
The Tax Justice Network is requesting just that
Not wanting to be shot down in flames here,Virgin Atlantic is a UK registered business employing many in the UK,as well as having the backing of Rolls-Royce, Airbus, Heathrow airport and Manchester Airports Group,so there are further UK interests at stake here too.
Fair enough, Branson is a tax avoider himself but he has set up a legitimate ltd company that pays it’s taxes in the UK.(I can’t vouch for the profits/losses)That said it hasn’t made much profit of late,having made losses in the past 3 years. The government also turned down a request for £500 million Virgin Atlantic loan last week and it has been asked to resubmit an application.
https://www.forbes.com/sites/daviddawkins/2020/04/20/billionaire-branson-asks-for-government-money-to-save-virgin-atlantic-claims-he-did-not-leave-britain-for-tax-reasons/#7d57cb05e218
Do we at this junction need an airline industry as it was?Do we need so many cheap flights in a greener world? I say this as someone who flies frequently,so it would curtail my travel plans severely ,but is this an opportunity to rejig the world economy and environment?
When there is a tax haven parent you have no idea about whether the right amount of tax is paid
What charges were made from offshore is the question to ask?
The airline issue is at least as big – we do not need Virgin
Yes I also mentioned the loans to parent groups earlier too.
Sadly the BoE is not being too open about who else is seeking these big loans,which considering that it is our central bank is disgraceful. Though a few have unilaterally declared they have like Easyjet and Greggs.
Looking at VA’s 2108 accounts it shows £22m in financial costs in a year it lost £49 m. Though at what rate that was borrowed and from whom is moot.They did make profits for the three years 2013-16 and they have been upgrading to more efficient aircraft quite a bit of late, as well as suffering downturns due to Brexit and a poor strerling vs dollar rate on fuel purcahses, so it could be genuine losses.
But as you say do we want to bail out the airline industry??.Once its gone it will never be the same again.
Hi Richard.
Just wondered if I could put forward a suggestion for a future “Question of The Day”?
If we were to create an economy from scratch, what would it look like?
Would we have CBRs, broad money, private banks (or even nationalised ones), Treasury bonds, direct BoE financing of the Treasury. Sovereign money (Positive Money style) etc etc?
What bits of the present system would we keep (and why)?
Is the future aim a sustainable economy and if so, what would that actually mean and look like?
Big topic, I know, but would be good to see (and understand) some of the ideas that are out there.
Going to the blog now
Better than the one I had lined up….
[…] A commentator who uses the name Vinnie on this blog asked this question this morning: […]
Receipt of benefit is subject to the money a person has in the bank to make sure that the benefit goes to the ones with the most need. If I had an island, let alone anything else, would the ordinary person qualify for housing benefit? Would the ordinary person get their debts written off from credit cards and overdrafts if they had lost money due to some tragedy not of their making? Get real!
The odious man has used his money to fund the Tories and now wants payback. Pity he didn’t use his money to pay tax. Ordinary working people pay more tax that some of the larger tax-dodging companies who put their money in tax havens but yet they are likely to get told to work when they are obviously unfit to avoid paying them benefits. On behalf of tax payers everywhere, Foxtrot Oscar, Richard Branson. Use your backup money first before claiming a penny you entitled tw**t!
Update;
France now bans bailouts for tax haven businesses
https://www.businessinsider.com/france-coronavirus-bailout-tax-haven-registered-subsidies-ineligible-020-4?r=US&IR=T
Yay!