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Denmark Denying Pandemic Aid To Cos. Using Tax Havens

By Matt Thompson and Joseph Boris · 2020-04-20 15:48:08 -0400

Danish companies that are registered in tax havens won't be eligible for government aid intended to mitigate economic effects of the coronavirus pandemic, Denmark's Finance Ministry has announced among other restrictions.

Under an agreement announced Saturday between the country's executive and legislative branches, companies that pay out dividends or buy back their own shares will also be excluded from government aid programs, which now total 400 billion kroner ($58.3 billion), including loans and guarantees.

The agreement also said Denmark was extending the duration of its pandemic-related aid programs to businesses and workers through July 8, a month longer than previously planned, and adding measures to increase spending by about 100 billion kroner. The measures, which include grants and loans that have already been disbursed, will be financed through extra borrowing, Finance Minister Nicolai Wammen was quoted as saying by Danish news media.

Companies will be able to recoup, as interest-free loans, some value-added tax payments they made in 2019.

However, a Danish company that's registered in a jurisdiction considered by the European Union to be noncompliant for tax purposes — also called the EU blacklist — won't receive compensation to cope with the outbreak.

"This means that companies based in tax havens in accordance with EU guidelines cannot receive compensation, insofar as it is possible to cut them off under EU law and any other international obligations," the government said in a statement accompanying the agreement.

All companies that take part in the program that receive more than 60 million kroner are also prohibited from paying dividends or buying back their own shares in the 2020 and 2021 fiscal years, the statement said. It added that companies will eventually be freed from those restrictions if they reimburse any aid amount received in excess of 60 million kroner.

The EU list of tax havens consists of the Cayman Islands, Palau, Seychelles, Panama, American Samoa, Fiji, Guam, Samoa, Oman, Trinidad and Tobago, Vanuatu and the U.S. Virgin Islands. Registering in any of these jurisdictions, which have low or no businesses taxes, enables a company to avoid paying taxes to the country where it actually operates.

Currently, EU countries consider the blacklist part of the bloc's external-relations strategy, meaning that by definition it focuses solely on non-EU countries. The Code of Conduct Group, a separate committee of the EU executive branch, strives to apply greater coherence in the tax policy of EU countries, so it's likely the Danish aid restriction will apply only to countries on the blacklist.

Tax-fairness advocates have said the credibility of the blacklisting process is undermined by the existence of tax havens within the EU, such as Ireland, the Netherlands, Cyprus and Malta.

"They are exempted from the screening despite failing the EU criteria and offering sweetheart tax deals to companies," Chiara Putaturo, an adviser on inequality and tax policy at Oxfam's EU office, told Law360 when the list was last updated in February.

Robert Palmer, head of Tax Justice UK, a research group that advocates for tax reform, said in a statement Monday, "Companies that seek to dodge their obligations to society by cutting their tax bills shouldn't expect a bailout when things go wrong."

The Danish Finance Ministry didn't immediately respond to requests for comment.

Denmark is among the first European countries to begin ending its pandemic lockdown. Last week, elementary schools reopened, and on Monday certain small businesses were allowed to reopen for customers. As of Monday, the country's health authorities had reported 7,711 confirmed cases, including 364 deaths, of COVID-19, the respiratory disease caused by the virus.

Poland became the first country to exclude aid from domestic companies with ties to tax havens. On April 8, Prime Minister Mateusz Morawiecki said large companies seeking a piece of the country's bailout fund of 25 billion zloty ($6 billion) would have to show they had paid Polish business taxes.

--Additional reporting by Todd Buell. Editing by John Oudens.

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