The European Commission Says Countries Cannot Exclude Tax Haven-based Firms From Coronavirus Bailouts

Given the already controversial status of tax havens, it should be unsurprising that some matters relating to coronavirus relief and tax havens are highly contentious.

Specifically, many countries, regions, and tax haven critics argue that coronavirus bailouts should not be for firms in tax havens. However, the European Commission ruled that this exclusion is not allowed, and these firms can receive the appropriate bailouts.

The Decision

The European Commission announced this decision on April 29, letting reporters know that all states have to comply with the rules for freedom of capital outlined in the European Union treaty.

Examined in more detail and applied to the current situation, the European Commission argues that member states cannot exclude companies from bailouts or other aid schemes. The companies should not be excluded because they have tax residency or headquarters in a different country that is still in the European Union.

What Prompted the Decision

Before this decision and statement by the European Commission, multiple member states had made moves to deny relief and bailouts to companies registered in tax havens, such as Panama and the U.S. Virgin Islands. These are just two of the dozen jurisdictions on the current European Union tax haven blacklist, which does not include any member states.

Previous Statements Refusing Bailouts to These Firms

As mentioned, multiple countries had issued statements indicating that they would not provide bailouts or other forms of coronavirus relief to firms based in tax havens. A handful has continued to make similar announcements even following the EU decision, leading to some controversy.

The Danish finance ministry announced in mid-April, before the EU decision, that although it planned to extend the bailout program so it would last until July, firms based in tax havens would not get additional coverage. The statement indicated that companies should pay the taxes that they are liable for based on national rules and international agreements before receiving that extended compensation. However, it did clarify that this lack of benefit would only apply to the extent that was allowed under EU law.

Poland made its announcement of a similar decision even earlier, on April 8. On that date, Prime Minister Mateusz Morawiecki indicated that countries searching for a bailout had to pay domestic taxes for businesses. He even directly said, “let’s end tax havens, which are the bane of modern economies,” leaving no doubt as to his stance or reasoning on the matter.

Belgium adopted a law that came into effect on May 7 and stipulated that businesses cannot receive state-aid if they are connected to tax havens via subsidiaries or shareholders. France also took a similar stance, choosing to deny bailouts to companies associated with tax havens.

The Dutch Prime Minister Mark Rutte announced before the European Commission statement that the government’s second set of bailouts would be more selective. It would exclude companies linked to tax havens as well as those that provide shareholders with dividends. This was a departure from previous policies from the Netherlands.

Even countries outside of the EU, such as Canada, took a similar stance. In late April, Canadian Prime Minister Justin Trudeau announced that firms using tax havens would not receive bailouts.

Some Countries Have Included Tax Haven-based Firms

For other countries, the European Commission’s decision will have no impact, as they have chosen not to restrict which firms receive aid based on tax haven connections.

As mentioned, the Netherlands initially included these firms, which is unsurprising. It is one of the EU’s low-tax countries that attract companies in search of local tax haven-like conditions. Luxembourg, Switzerland, and the UK were also expected to exclude tax haven-based firms from relief given their connections to tax haven policies.

Given the European Commission ruling, even firms associated with tax havens should have the footing they need to fight for assistance.


Recent posts

4 Consequences of US Tax Reform

Over the course of the past several weeks, President Trump has consistently called for tax reform, and the Senate Finance Committee has scheduled hearings on both business and individual tax reform.

More >>>