Some European countries have decided to block businesses linked to offshore tax havens from receiving government-backed coronavirus bailouts.
To date, France, Poland, Belgium and Denmark have all announced similar measures designed to exclude some companies from taxpayer-funded relief programs.
As of Tuesday, more than 4.8 million people had contracted Covid-19 worldwide, with 318,833 deaths, according to data compiled by Johns Hopkins University.
The pandemic has forced world leaders to quickly deploy emergency financial measures and aggressive stimulus packages in an effort to avoid a devastating economic collapse.
The EU blacklist
Earlier this month, Belgium became the fourth European Union country to introduce legislation that prevents pandemic relief measures to companies with a presence in tax havens.
The law, which was adopted on May 7, stipulates that any business with a link to tax havens via a shareholder or subsidiary won’t be able to receive state-aid.
Poland, France and Denmark had all proposed similar amendments to deny relief funding to firms operating in jurisdictions the EU considers uncooperative for tax purposes.
The EU’s so-called “blacklist” identifies 12 countries that have failed to meet the bloc’s standard on the open and fluid exchange of tax information.
None of the countries on the list are members of the EU, since the bloc claims all member states are fully compliant and held to a higher level of scrutiny than other countries across the globe.
A spokesperson from the European Commission, the executive arm of the EU, told CNBC that it was up to member states if they wished to grant state aid and to design measures in line with EU rules, “such as to prevent fraud and tax evasion or aggressive avoidance.”
At the same time, the spokesperson said member states “must comply” with fundamental freedoms guaranteed by the EU Treaty, including on the free movement of capital and the free movement of persons.
“This means they cannot exclude companies from aid schemes on the basis of headquarters or tax residency in a different EU country,” they added.
‘Bail or bailout’ test
Alex Cobham, chief executive of the Tax Justice Network, which tracks corporate tax avoidance, believes the coronavirus pandemic “has exposed the grave costs of an international tax system programmed to prioritize the interest of corporate giants over the needs of people.”
Late last month, the Tax Justice Network published a five-step “bail or bailout” test to determine whether governments should help businesses requesting pandemic relief.
The checks consisted of finding out whether one or more subsidiaries of the corporate group is listed on the Financial Secrecy Index (a system that ranks jurisdictions according to the secrecy of their offshore activities); seeing whether the group has participated in any financial scandals; looking to see whether the group has published its most recent accounts; asking whether the group has published information on who the beneficial owners are of all its legal vehicles; and requesting to see whether the group has committed to employee protection.
If any of the conditions are not met, the Tax Justice Network argued governments must either make a bailout conditional on recipients meeting all of the requirements by the end of 2020 or to disqualify them.
“For years, the corporate tax havens like the British Virgin Islands, the Netherlands, and Luxembourg have fueled a race to the bottom, handing over wealth and power to the biggest corporations and taking it away from the nurses and public service workers risking their lives today to protect ours,” Cobham added.
In response, a spokesperson at Luxembourg’s finance ministry told CNBC: “Characterizing Luxembourg as a tax haven is entirely unfounded, and at best reflects an outdated view not only of the country itself but of today’s international taxation framework more generally.”
Spokespeople for the British Virgin Islands and the Netherlands were not immediately available for comment when contacted by CNBC.
