Poland and Denmark have sent a clear message to businesses that make use of tax havens, excluding them from government bailouts and coronavirus relief programmes.
Tax havens are a huge problem for the European Union with billions of money needed to fight the coronavirus pandemic being lost each year. The fightback now looks to have begun.
Tax Justice Network claims $500 billion in tax every year is lost to multinational corporations “abusing the law to pay less than they owe in tax.” They point to the figure being “250 times greater than the UN’s appeal for a $2 billion fund to tackle coronavirus in the world’s poorest countries, which has yet to be met.”Today In:
Over the weekend Denmark’s Ministry of Finance confirmed that “companies seeking compensation … must pay the tax to which they are liable under international agreements and national rules.” While over in Poland Prime Minister Mateusz Morawiecki made it clear that the $6billion (PLN 25 billion) allocated will only go to “large companies” who “pay taxes in Poland, not in tax havens.”
Although not yet seeking government bailouts, some of the world’s best known tech companies are embroiled in the European dance of who can pay the least, and where. In December last year Amazon, Facebook, Google, Netflix, Apple and Microsoft were accused of “aggressively avoiding” $100 billion of global tax over the past decade according to Fair Tax Mark research.
Facebook paid just $34.58 million (£28 million) in corporation tax in the UK in 2018 despite record sales of $1.98 (£1.6 billion) according to the latest account on the U.K.’s Companies House.
CEO Mark Zuckerberg told a conference in Munich in February this year, “I understand that there’s frustration about how tech companies are taxed in Europe. We also want tax reform … we accept that may mean we have to pay more tax and pay it in different places under a new framework.”
The U.S. tech giants are run highly-respected entrepreneurs. The likes of Amazon, Facebook, Google, Netflix, Apple and Microsoft set the tone for business across an entire jurisdiction.
The move by Poland and Denmark is the clearest sign yet that countries are becoming increasingly frustrated with the billions in tax lost to companies seeking a better offer elsewhere.
Alex Cobham, chief executive at the Tax Justice Network tells Forbes that the coronavirus pandemic has exposed the grave costs of a broken down international tax system.
He says that corporate tax havens like the British Virgin Islands, the Netherlands and Luxembourg “have fuelled 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 with under-resourced protection to protect ours.”
Cobham adds that Poland and Denmark are right to exclude corporations registered in tax havens from their relief programmes, adding that “economies cannot be rebuilt on top of a tax haven trapdoor.”
On the issue of actual member states like Ireland and The Netherlands are acknowledged on their list of tax havens, and not “just the small palmy islands of popular imagination.”
The Political Tax Tangle
Europe’s problem with who pays tax and where is beginning to embroil established eurozone countries and major European countries that offer a high quality of life to its citizens.
Luxembourg, the Netherlands and Ireland are the three EU countries seen to be taking tax revenues from profits made in other countries, through incentives made to house the headquarters of foreign firms. A quick glance at OECD data shows just how good at this they are.
The Netherlands reportedly cashes in on $10 billion of corporate tax from other EU countries per year, with France and Italy taking £2.7 billion and £1.5 billion hits respectively, according to the Tax Justice Network.
The issue could yet fuel the fire of an ongoing economic argument at the heart of Europe. The Netherlands is one of the major opponents within the eurozone to Italy’s joint debt measures for the single-currency area’s coronavirus recovery plan, while Italy is a fierce advocate of a joint response. It’s a point of contention about which Italy’s voters, itching for a vote on EU membership, are all too aware.
Economics And Identity
While in Ireland, boasts over GDP levels swelled by corporate filings played a part in Brexit negotiations. In 2019 an Irish economist claimed in the FT that, “Ireland buys more from Britain because Ireland is much richer. Rich people buy stuff.
“On a conservative estimate, the Irish are now over 25 per cent richer than their U.K. counterparts.”
On paper he’s not wrong, GDP per capita in Ireland is a massive $90,000, while in the U.K. the figure is $48,000. One figure sounds about right, the other simply doesn’t.
More transparency is needed as to where the massive difference between Ireland and the rest of Europe might come from. The OECD certainly don’t agree with the claim that Ireland’s GDP per capita is proof of Ireland’s disproportionately “rich people.” Irish GDP “has to be read with care,” they said back in 2005 saying that the GDP figure did not reflect real “wealth.”
A report in December 2019 from The Fair Tax Mark called The Silicon Six and their $100 billion global tax gap, showed how Ireland plays a “central role to the tax avoidance” of Apple, Facebook, Google and Microsoft.
Shedding light on the reasons for the huge difference between Ireland and the rest of Europe, the report cites 2018 research from University California, Berkeley and the University of Copenhagen that concluded that Ireland was “the biggest ‘tax haven’ in the world, with foreign multinationals shifting $106 billion of corporate profits to Ireland in 2015 alone.” In 2017, the effective tax rate in Ireland had reached a new low of 4.9%. Making paying your taxes in Ireland simply good business, for big businesses.
But this is not something that reassures tax payers in the here and now.
As the U.K. battles a deadly pandemic, and faces a shortage of basic hospital supplies, Alex Cobham, of the Tax Justice Network says, “The U.K. alone loses £25 billion in corporate tax a year to corporate tax abusers. That’s more than triple the £6.6 billion allocated to the NHS from the government’s coronavirus emergency fund.
However, the U.K. can’t feel too sorry for itself. The U.K. is a massive part of the problem, described by Tax Justice Network as the “world’s greatest enabler of corporate tax avoidance, responsible for over a third of the world’s corporate tax avoidance risks” through its network of crown dependencies and overseas territories.
Cobham tells Forbes, “The U.K.’s tax war hasn’t just put NHS workers at risk–people and health professionals around [the] world have lost vital public funds to the U.K.’s network of tax havens.”
Cobham’s solution is a shift to a “unitary tax approach that makes corporations pay tax based on where their employees do real work”, and not where their “accountants hide their profits.”
He adds, “Tax revenues must arise where the real activity is–just as health needs do.”
Poland and Denmark have sent a message to business, loud and clear.
Source : http://forbes.com