Posted on: April 22, 2020 at 2:15 pm
Last updated: April 23, 2020 at 2:24 pm

The COVID-19 pandemic has caused a sudden economic downturn that has made many experts warn of a looming recession- even more believe we are already in one. Businesses around the world have been forced to close their doors, and large corporations’ stock is plummeting.

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This has prompted many governments to roll out stimulus packages and offer bailouts to both small businesses and large corporations. For some, however, there may be a catch.

Denmark and Poland are the first governments to exclude firms from this bailout that incorporate themselves in offshore tax havens to avoid domestic business taxes [1].

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Read: For survivors of severe COVID-19, beating the virus is just the beginning

What is a Tax Haven?

A tax haven is an offshore country that offers foreign businesses and individuals very little tax liability if any at all. They do not require that the person or business actually live in or have a physical presence in that country, and they share very little information with foreign tax authorities [2].

There is no standard for the classification of a tax haven country, however, there are some regulatory bodies that monitor tax haven countries, such as the Organization of Economic Cooperation and Development (OECD) and the U.S. Government Accountability Office [2].

There are some locations in the United States that could be considered tax havens, such as Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming because they require no state income tax [2].

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Some of the most common international tax havens include Andorra, the Bahamas, Belize, Bermuda, the British Virgin Islands, the Cayman Islands, the Channel Islands, the Cook Islands, The Island of Jersey, Hong Kong, The Isle of Man, Mauritius, Lichtenstein, Monaco, Panama, St. Kitts, and Nevis [2].

How do Tax Haven Affect the Economy?

Tax havens cost governments between five hundred and six hundred billion dollars every year in lost corporate tax revenue. As of 2017, American Fortune 500 companies alone held an estimated 2.6 trillion dollars in offshore accounts, and individuals had 8.7 trillion dollars [3].

Offshore tax havens also cause political damage. They provide hiding places for elites to conduct illicit activity, risk financial instability in emerging market economies and drain resources from poor countries to be given to wealthy nations [3].

Read: Prepare for the Ultimate Gaslighting (a Post-Pandemic View)

Poland and Denmark Refuse Tax Haven Bailouts

The Danish finance ministry released a statement that not only would corporations based in tax havens not be covered by government bailouts, if they wanted to continue receiving coverage, they would also have to pay the taxes that they owe.

“Companies seeking compensation after the extension of the schemes must pay the tax to which they are liable under international agreements and national rules,” a translation of the statement said [1]. 

Similarly, Polish Prime Minister Mateusz Morawiecki stated on April 8th that large companies who want to benefit from the government bailout must pay domestic business taxes.

“Let’s end tax havens, which are the bane of modern economies,” he said [4].

The UK, the Netherlands, Switzerland, and Luxembourg are unlikely to follow suit because they have provisions in place that allow businesses to be registered offshore. According to Tax Justice Network, those four countries are responsible for half of the world’s corporate tax avoidance risks [5].

Robert Palmer, the executive director at Tax Justice UK, however, believes that the United Kingdom should enact the same restrictions as Denmark.

“Companies that seek to dodge their obligations to broader society by cutting their tax bills shouldn’t expect to get bailed out when things go wrong,” he said. “Any bailout needs to come with conditions to ensure good business behaviour.” [1]

Read: What Will the World Be Like After Coronavirus? Four Possible Futures

The Cruise Industry Asking for Bailouts

The cruises have been one of the hardest-hit industries in this pandemic, and have hoped that the senate’s two trillion dollar relief package would provide relief. Many of these companies, however, will be unable to receive bail because they are not “created or organized” in the United States, as the package stipulated.

Carnival Corporation, Royal Caribbean, and Norwegian Cruise Line are formally registered in Panama, Liberia, and Bermuda, and make up more than two-thirds of the industry. For this reason, they will not be eligible for government assistance [1].

A Call to Action

Many experts are calling on governments to crack down on offshore funds, under the pretense that claiming this tax revenue could be vital in protecting the economy. Rasmus Corlin Christensen, a research associate at the International Centre for Tax and Development, explains that governments require tax resources to respond to economic crises.

“Tax avoidance and global tax competition, more broadly, strain the ability of countries to raise those resources,” he says [1].

A prominent Italian broadcaster, Fabio Fazio, has even implicated companies with offshore accounts with the high death toll in his country. He argues that the lack of resources in their healthcare system stems from a lack of funding, which is provided by the country’s tax revenue.

“It has become evident that those who do not pay their taxes are not only guilty of a crime, but of murder: if the beds and the respirators are not there they are partly to blame,” he said [1].

It has become evident during this crisis that even in wealthy, developed nations around the world, our healthcare systems are drastically under-funded, and many experts are arguing that if we want to avoid such a disaster in the future, we must hold corporations accountable who are dodging taxes that would go toward our hospitals and other essential services.

Keep Reading: ‘You are safer outside than inside’: Disease expert criticizes restrictions

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Brittany Hambleton
Team Writer
Brittany is a freelance writer and editor with a Bachelor of Science in Foods and Nutrition and a writer’s certificate from the University of Western Ontario. She enjoyed a stint as a personal trainer and is an avid runner. Brittany loves to combine running and traveling, and has run numerous races across North America and Europe. She also loves chocolate more than anything else… the darker, the better!

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