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U.K. Groups Don’t Want COVID-19 Relief for Companies in Tax Havens

Posted on May 13, 2020

U.K. lawmakers and accounting groups are ramping up calls for the government to deny coronavirus relief funds to companies based in tax havens.

Applauding the “bold moves” of France and Denmark in denying bailout funds to companies based in countries on the EU blacklist, the Institute of Chartered Accountants in England and Wales has asked the U.K. government to “analyze the entities that received bailouts but are known to have operations in tax havens.”

In a May 12 article on actions to “recalibrate the social contract” and rebuild a fairer economy after the pandemic, the professional membership organization also urged the government to question the status quo of offering tax incentives that encourage companies to take on large amounts of debt, often so they can pay out dividends to investors.

“Investors take risks and should be rewarded, but debt-driven growth is not a long-term sustainable solution,” the organization wrote.

On May 7 a letter signed by 34 members of Parliament was sent to U.K. Chancellor of the Exchequer Rishi Sunak asking that companies receiving state coronavirus aid not be registered in tax havens. The MPs also asked those companies to temporarily halt share buybacks and dividend payouts and curb excessive executive pay.

“It would be wrong, for example, to bailout tax dodgers like billionaire Richard Branson, or for public money to go to companies that continue to pay millions to executives or shareholders,” says the letter, which was written by four Labour Party MPs. In April, Branson, whose company Virgin Group Holdings Ltd. is based in the no-tax British Virgin Islands, defended his request for a U.K. bailout of his struggling airline Virgin Atlantic.

Denying state aid to companies based in tax havens has become popular during the pandemic. In addition to France and Denmark, Poland, Belgium, Austria, and Luxembourg have adopted similar policies. But a May 9 report from Tax Watch, a U.K.-based investigative think tank, warns that there are limitations in relying on tax haven blacklists and recommends a greater focus on tax avoidance.

“The nature of modern tax avoidance is that multinationals will set up a conduit within a tax friendly EU jurisdiction such as Ireland or the Netherlands, and this conduit will then move money out to more traditional tax havens in order to ensure that profits are not taxed,” the report says.

Tax Watch suggests that governments require companies to repay aid if they are found to engage in unlawful tax avoidance. The report suggests holding such companies accountable by excluding them from government support for 10 years.

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