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Scotland Bans COVID-19 Grants for Tax Haven Companies

Posted on May 22, 2020

The Scottish Parliament has approved a measure to exclude companies based in tax havens from coronavirus-related grants after members backed a Scottish Green Party amendment to emergency legislation.

The measure in the Coronavirus (Scotland) (No. 2) Bill, passed on May 20, is intended to exclude “those who seek to minimize their tax arrangements to the detriment of the wider economy,” according to a Scottish government statement.

Part 11 of schedule 4 to the bill establishes that, before providing a coronavirus-related grant to a person, Scottish ministers must consider whether the person “is based [i.e., incorporated or otherwise established] in a tax haven; is the subsidiary of a person based in a tax haven; has a subsidiary based in a tax haven; or is party to an arrangement under which any of its profits are subject to the tax regime of a tax haven.” In those circumstances, the ministers “are not to provide the grant.” The measure is set to expire at the end of September.

“Tax haven” for this purpose means a jurisdiction included for the time being in the revised EU list of noncooperative jurisdictions. Ministers “have yet to say how much Scottish government spending will be affected or how it will be enforced,” The Guardian reported on May 21.

The Welsh government announced on May 15 that it will exclude businesses owned by “a company or individual living in a 100 percent tax haven” from financial support under its Economic Resilience Fund. “It is only right that businesses which are not contributing tax payments to our economy should not benefit from this scheme,” Finance Minister Rebecca Evans said.

The announcements marked “a step forward in our campaign to ensure we bail out the workers, not tax haven billionaires,” Tax Justice UK said in a May 21 statement as it launched a petition to prompt members of the U.K. Parliament to “get their act together on an issue of genuine concern to the public.”

“Westminster is well behind the curve on this issue. . . . All governments need to go further and implement the Fair Tax Mark’s conditions for a fair tax bailout,” the group added. The Fair Tax Mark campaign has called for corporate bailouts to be conditioned on businesses committing to “no profit shifting” and publishing a “binding tax policy that explicitly shuns tax avoidance and the artificial use of tax havens.” Fair Tax Mark tweeted a letter to U.K. Chancellor of the Exchequer Rishi Sunak on April 20 asking him to include the latter as one of several eligibility requirements for COVID-19 business support.

Alex Cobham, chief executive of the Tax Justice Network, said the Scottish government has made an important first step, but must “look beyond the EU tax haven blacklist in order to make sure bailouts go towards protecting people’s jobs and well-being instead of towards tax havens.”

“The EU tax haven blacklist, which Scotland and other European countries are relying on to stop COVID-19 bailouts from ending up in tax havens, is based on an old-fashioned notion of tax havens as small, palm-fringed islands and ignores the reality of modern day tax havenry. Many of the biggest corporate tax havens are based right here in Europe,” Cobham said in a statement.

A recent YouGov poll suggested that more than 80 percent of British voters oppose government bailouts for companies registered in tax havens. TaxWatch UK, a think tank, said the approach would have limited effect because of “problems with defining tax havens.” A more effective approach might be to discourage avoidance by increasing transparency and making access to government support dependent on tax compliance, it argued.

The U.K. government should not offer emergency state support to big businesses registered in tax havens, 24 U.K. Labour MPs said in a May 7 letter to Sunak. Denmark, Poland, and France announced in April that they would exclude companies located in tax havens from coronavirus relief measures.

Spending Watchdog Monitors Support Programs

An overview of the U.K. government’s response to the COVID-19 pandemic in the period up to May 4 sets out £124 billion of “programs, initiatives, and spending commitments,” including £82 billion of financial support for businesses. The estimated cost of government action includes £111 billion of grants and other payments, but does not include loss of receipts to the exchequer of £4.4 billion, “largely from deferred tax payments,” the National Audit Office said in a May 21 statement.

The National Audit Office report sets out the support for individuals and businesses announced up to May 4, including the coronavirus job retention scheme and the self-employment income support scheme, increases to universal credit and tax credits, funding for council tax relief, promotion of “time to pay” tax arrangements, and deferral of income tax and VAT payments.

Eight million jobs have been furloughed, with £11.1 billion claimed so far through the coronavirus job retention scheme, HM Treasury confirmed in a May 19 release. Two million self-employment income support claims have been submitted worth £6.1 billion. The bounce back loan scheme has seen 464,393 approved loans so far worth £14.18 billion; the coronavirus business interruption loan scheme has seen 40,564 loans worth £7.25 billion approved so far; and the coronavirus large business interruption loan scheme has seen 86 approved loans totaling £0.59 billion, Treasury said, adding that the figures will be updated each week.

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