Governments want to stop money for tax havens in crisis

The last financial crisis of 2008 was filled with moral anger. In London, people testified that they no longer dared to say they worked in the financial industry and in New York, protesters occupied Wall Street.

But during the current pandemic crisis, the Financial Times reports that people in London’s finances are confused: This is a crisis that banks cannot reasonably be blamed for. “It seems that this time we are on the good side,” says a bewildered banker who wants to be anonymous.

In the current crisis, banks have not asked for government support. There are restaurants, pubs and shops. Many people can see the justice of this in a completely different way. This year’s bailout package, for example in the UK, has been much more popular than the ones that went to the banks in 2008. It is politically easier to save a neighborhood helmet than a bank.

Or is it really?

The UK’s largest pub owner is called the Stonegate Pub Company, it now owns almost 4,800 pubs and all of these pubs have been forced to close. Therefore, the Stonegate Pub Company has also participated in the UK rescue packages. But what is Stonegate Pub Company? It is a company founded and owned by Private Equity TDR Capital. And where is TDR Capital based? In the Cayman Islands: the relatively infamous tax haven in the Caribbean.

Should British taxpayers’ money really go to a company based in a tax haven?

Many would say no to that question

The Danish government recently stated that companies based in tax havens should not receive part of the Danish bailout money. The Polish government said the same thing about the Poles and, in France, Finance Minister Bruno Le Maire announced: “It is obvious that if a company has its headquarters or has subsidiaries in a tax haven, it should not be part of our packages state bailouts. ”

To many voters, this seemed very reasonable. But is it really that simple? For clarity, even in what is a tax haven, I call Ronen Palan, the leading international expert on the subject. Palan is a professor at London City University, specializing in overseas-based financial centers.

– First, you should never talk about tax havens. Taxes are only part of what this is all about. Secondly, one has to wonder what the French Finance Minister means, says Ronen Palan.

The term tax haven is misleading, Ronen Palan says because these overseas-based financial centers do so much more. A company chooses jurisdiction depending on everything from bankruptcy law there, to the relationship rules between different owners and whether there are bilateral agreements that are useful in any way.

– The more years I spent investigating this, the more variety I see. It is almost impossible to generalize more, says Ronen Palan.

Which countries should be considered a “tax haven”?

– The most important for companies are countries such as the Netherlands, Ireland, Switzerland and Singapore. It’s simply jurisdictions that allow you to create a type of international corporate structure that allows you to largely avoid taxes you don’t want to pay, says Ronen Palan.

But does the French Finance Minister really mean that French companies with subsidiaries in the Netherlands should be disqualified from French rescue packages? No, the French finance minister does not mean that. Because Bruno Le Maire had identified other EU countries in this way, it had become a major riot in Brussels. No wonder there was a clarifying statement from the French Finance Ministry that what the minister meant by “tax havens” was the countries on the EU’s official list of tax havens. None of the countries that the EU has classified as “tax havens” are members of the EU. Although the Netherlands, Ireland and Luxembourg are therefore often more important than, for example, the Cayman Islands.

In the UK, the Starbucks coffee chain has been criticized for many years for the few British taxes the company paid. It was based in the Netherlands and devoted itself to general creative international tax planning. And how can a small coffee shop opened by two friends on the corner be able to compete with Starbucks when, unlike Starbucks, they have to pay all their taxes?

On the other hand: if Starbucks next week applied for pandemic assistance from the British state and did not get it due to the low amount of taxes they have previously paid. Then it would hit the thousands of Britons who work for Starbucks. No, politically, these problems are not easy at all. What many voters would call taxes is an integral part of what economists call globalization.

The world’s 100 largest companies have an average of 700 subsidiaries each. Then there will be around 70,000 different units to pass. And if the French finance minister intended to announce all this to decide who is entitled to support and not:

“At the time, there weren’t that many French companies left to give them money,” says Ronen Palan.

In other words, when Denmark, Poland and France say they do not intend to support companies based in tax havens, it does not mean much. And that certainly doesn’t mean what many voters in Denmark, Poland, and France probably thought it did mean: that their tax money would not go to companies that avoided taxes.

“On the other hand, you must understand that what these companies do is not illegal,” says Ronen Palan. Why should a company choose to pay more taxes if it can legally escape?

Tax attorneys are just doing their job. Stonegate Pub Company, with its 4,765 pubs, went to the British media and told them that they had paid their British corporate tax at least: “Last year we paid over £ 300 million in taxes. We are a British company that pays British taxes and therefore we are entitled to the support of the British state. ” Then criticism was largely silenced. But if Stonegate Pub Company still pays corporate taxes in the UK, why do they have a Cayman Islands owner?

– Ordinary people think that taxes are the taxes that a company pays on its profits, says Ronen Palan. But it is not that easy at all. You should always observe the situation of the individual company.

For example, for a hypothetical business with many bars, a major tax could be the capital gains tax. If you want to sell several of your pubs, you will have to tax profits in the UK, but if you are based in the Cayman Islands, for example, you can avoid it. No, it may not be politically easier to save pubs than to save banks.

And stepping on tax havens is much more difficult than European politicians have given the shine of recent weeks.