Denmark bans tax haven companies from accessing coronavirus bailout money – will other countries follow?

Denmark has told companies that they will not be eligible for bailout funds to help them through the coronavirus pandemic if they are registered in tax havens, prompting calls for other countries, including the UK, to attach similar strings to their own financial support packages.

The Danish government also said companies that access government support must not use profits to buy back shares or pay dividends to shareholders in 2020 or 2021. Earlier in April, Poland said its bailout funds would only be available to companies that pay tax in the country.

The moves have reignited debate over tax avoidance and come as Sir Richard Branson faced criticism after asking the UK government to bail out Virgin Atlantic with a £500m loan.

Sir Richard said in a blog post that he would offer his private Caribbean island as collateral against any money advanced by the government, warning that without help Virgin Atlantic would go bust.

Britain’s seventh-richest person, who has an estimated wealth of £4.7bn, said he has pumped £250m into the airline, which is 51 per cent owned by Virgin Group.

Campaigners pointed out that the group’s ultimate holding company, which Sir Richard and his family control, is based in the British Virgin Islands (BVI), which does not charge any corporation tax. Sir Richard has not personally paid tax in the UK for the past 14 years.

BVI ranks as the world’s number-one corporate tax haven, according to research by the Tax Justice Network. It’s also the ninth most secretive jurisdiction in the world when it comes to publishing companies’ financial information. Sir Richard said Virgin pays all taxes required of it in all jurisdictions where it operates.

However, Alex Cobham, chief executive of the Tax Justice Network, said in a tweet that it was “impossible” to assess the truth of Sir Richard’s claim because BVI companies provide little or no transparency.

Transport companies, some of which have been found in the past to have taken advantage of tax avoidance measures, were granted a £400m bailout earlier this month after plummeting passenger numbers threatened their survival.

Paul Monaghan, chief executive of Fair Tax Mark, an accreditation organisation that allows companies to demonstrate they make a fair contribution, said Denmark’s approach should be praised but it also has some limitations that the UK should try to avoid.

The Danish system will almost certainly have to use the EU’s corporate tax avoidance blacklist, which does not include some of the worst-offending countries.

The list was strengthened last year with the addition of the Cayman Islands, a key financial secrecy jurisdiction, but it is generally considered weak. EU nations, including the Netherlands, Ireland, and Luxembourg, which facilitate billions of euros of tax avoidance every year, are not on it, nor are Switzerland or most of the overseas territories and crown dependencies that make up the UK’s network of tax havens, including BVI, Jersey and Guernsey.

“The Danes are doing as much as they can within EU state aid law,” said Mr Monaghan. “If you go down the route of excluding companies registered in tax havens you end up having to use the EU’s blacklist.”

Instead, Fair Tax Mark is proposing that any company that accepts bailouts must sign up to a set of binding fair tax principles. This would work in a similar way to the conditions attached when a company takes out a loan from a bank.

First, they would have to publish a tax policy that commits them to no artificial use of tax havens. Any bailed-out company would no longer be able to use accounting manoeuvres to move profits from where they are actually made to a low-tax jurisdiction such as Bermuda or the British Virgin islands.

The policy would be audited annually and signed off by a named director who is responsible for compliance.

Second, companies would have to commit to full “country by country” reporting of profits and taxes. “This is the long-standing ask of the tax justice movement because we don’t really know if companies are paying a fair amount in each country without it,” said Monaghan.

“Take the example of Google, which books about £1.6bn of revenue in the UK but we think it should be more like £6bn.

“I got my Microsoft Office subscription renewal through recently. It came from Ireland again, not from the UK even though Microsoft says it books profits where the activity is.”

Under Fair Tax Mark’s plan, companies that use the furlough scheme to claim refunds from the government for employees’ wages would not have to sign up. It would be specifically targeted at firms calling for a direct bailout, as Virgin Atlantic is. Unlike the Danish plan it would be solely focused on future conduct.

Mr Monaghan is hopeful that the current crisis can become a turning point for tax justice.

“To the man and woman in the street this isn’t that radical, what we’re asking for. Polling by Fair Tax Mark shows it is popular.

“The public mood, the narrative right now about everyone pitching in and expecting fairness, means it is very conducive for some breakthroughs on tax. We are potentially standing on the precipice of some quite big gains.”