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Europe Clamps Down On Tax Havens, But Not All Are On Board

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For years Europe has struggled to reach a consensus on corporate taxation policy. With the cataclysmic effects of COVID-19, could that be about to change? 

Swept up in the pandemic’s tide of economic misery, multinational firms are floundering like never before. For the first time, many are dependent on government support for mere survival.

Leveraging this unique advantage, ministers must seize the moment and clamp down on fiscal wrongdoers, say tax justice groups.

Coronavirus has underlined the vital role of stable, well funded public services, not to mention the need for strong state treasuries.

Companies that use loopholes—however legally—to swerve their tax obligations don’t contribute to these safety nets, and so shouldn't be allowed to call upon them when times are tough. 

That’s the argument of a lengthening list of European nations. Denmark, France, Scotland and Wales have each pushed through legislation to prohibit corporate tax evaders from receiving state bailouts amid the pandemic.

A fifth country, Poland, seems determined to go further still. "Let's end tax havens, which are the bane of modern economies," said Prime Minister Mateusz Morawiecki 

The E.U.’s official position is a little more nuanced. Member states wishing to withhold stimulus funds have Brussels’ backing, a spokesperson confirmed, but only if the offending firm is tied to a recognised, off shore tax haven.  

For many, this is a problem. While the usual suspects—the Cayman Islands, Panama etc.—are covered, Brussels’ blacklist pointedly omits low-tax regimes within the bloc itself.

“The credibility of the blacklisting process continues to be undermined by the E.U.’s own tax havens. They are exempted from the screening despite failing the E.U. criteria and offering sweetheart tax deals to companies,” said Chiara Putaturo, the NGO’s European lead on tax justice earlier in the year, identifying Cyprus, Ireland, Luxembourg, Malta and the Netherlands as fiscal retreats.  

The latter of those—the Netherlands—is presently at the centre of a controversy involving automobile giant Renault. As part of a corporate alliance with Nissan and Mitsubishi, the French firm is headquartered in Amsterdam—yet is in line for a €5 billion coronavirus bailout package from Paris. For critics, this typifies tax haven injustice (something both Renault and the Dutch government deny).

Elsewhere in Europe, the push against corporate chicanery is less pronounced. Despite mounting pressure, the British government has stood firm in its refusal to act. "Vulnerable people" are paying the price of COVID-19 while large companies “avoid responsibility” by “hiding their wealth,” wrote an influential group of U.K. church leaders last month as they called on ministers to close tax loopholes. But to no avail.

This, perhaps, should come as no surprise; The Tax Justice Network—a think tank—describes Britain as “the world’s greatest enabler of corporate tax avoidance," after all.

London vociferously denies this charge, but for many, only when ‘country-by-country’ reporting is introduced will questionable companies have nowhere to hide. This approach achieves greater transparency, advocates say, by forcing firms to break down their financial data by county—or tax haven—of operation.

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