17 ms·

Denmark: No aid for companies which pay out dividends or are reg. in tax havens

632 points by sebazzz 7y ago

Nextgrid 7y ago
Maybe I'm not understanding something but why do they consider paying dividends as something bad? They are essentially excluding the majority of businesses using this criteria.
- Angostura 7y ago
  The rationale would be that they would expect tax payers to be paid back, ahead of shareholders.
- peterwoerner 7y ago
  If they have excess cash to pay a dividend, why do they need a bailout?
- ucosty 7y ago
  If a company can still afford to pay out dividends it probably isn't really in need of aid.
  - elric 7y ago
    It's probably a bit more nuanced than that. Dividends are often scheduled months in advance, based on (for instance) last year's profits. Having made a profit last year, and having promised a dividend months before corona doesn't mean you won't be struggling now.
    - Ididntdothis 7y ago
      Is the promise of dividends binding? I don’t think so.
      - brewdad 7y ago
        To my knowledge, it isn't. There is a date of ownership where the dividend eligibility is determined and then it is paid out a few weeks later. I would imagine those payouts are binding but a planned dividend for June could easily be rescinded without legal penalty. However it is priced into the value of the stock. Slashing dividends will tank the stock price. C'est la vie.
        nradov 7y ago
        Eliminating a planned future dividend by itself would have no effect on the stock price. What would affect the stock price is the management explanation that comes along with cancelling the dividend. If they say that profits will drop even more than analysts had expected, then that would tend to cause a share price decline as it would be new information to the market. Stock prices usually drop after a dividend is payed out because each share now represents a claim on fewer assets.
      - anonymousDan 7y ago
        It's not. The stock price will likely take a hit, but such is life.
    - benburleson 7y ago
      So, the business then has the choice to use last year's profits to keep the business afloat or pay investors. Seems like an easy choice unless your only motivation is lining investor pockets.
      - chrisseaton 7y ago
        > lining investor pockets Investors are often normal people like you and me, using dividends and the sale of shares to put food on their families' tables.
        elric 7y ago
        Indeed. The fallacy that all investors are all fat cats, swimming in money is pretty galling. When interest rates on savings accounts dropped, many regular folks took some of their savings and put into dividend paying companies. I'm sure most of them are aware that this is an investment and isn't without risk. I'm certainly not advocating for companies to pay out dividends no matter what. But the lack of nuance bothers me. Not all dividend paying companies are greedy, and not all dividend investors are wealthy.
        calcifer 7y ago
        I've never once met a person who would otherwise go hungry if they didn't get dividends, have you? What you really mean is those "normal people" would have to sell their third car or maybe rent out their summer home without that dividend, which is just fine by me.
        1123581321 7y ago
        I know a bunch of retirees who live modestly off of dividend income, couldn’t afford a significant cut and couldn’t easily return to work. I don’t think you have broad enough experience to assume no one earns a few thousand a month from dividends and needs most of it to help pay bills.
        strictnein 7y ago
        A semi-common retirement setup is to buy relatively stable stocks that have good dividends and supply you with a 4-6% annual return.
    - KillerDiller 7y ago
      It's actually way simpler than that: the owners of a company facing crisis have the choice between providing it with additional liquidity or putting its future (and thus their stake) at risk. This is the one core manifestation of the risk they are bearing, and for which they allegedly deserve the dividends in the first place. Getting a dividend for last year's performance is the opposite of providing liquidity. If they get the cash because it was scheduled, they need to immediately put it back. If they take the cash and run, they failed to act in their own interest, and do not deserve to have their investment protected.
  - chrisseaton 7y ago
    Paying a dividend is paying a person. It's like you're saying that 'as long as they can afford to keep paying employees' they don't need aid. Would you rather they stopped paying people but didn't take aid? The whole point of the aid is so they can keep going and keep paying people.
    - throwaway2048 7y ago
      Return from investment is nothing like salary.
      - chrisseaton 7y ago
        Many workers are paid a majority of their income in the form of stock from the company they work for.
        Agathos 7y ago
        Suing your employer for wage theft because 1. They are still paying your salary, and 2. They are still granting you stock, but 3. They have suspended dividends on the shares you were granted seems like a reach. I'd definitely be interested in reading about it if someone actually tries it, though!
        chrisseaton 7y ago
        Not sure who you're replying to. I didn't mention suing anyone or any idea of wage theft.
        Agathos 7y ago
        You suggested paying a dividend was similar to paying employees. When throwaway2048 challenged this, you brought up stock-based compensation. Surely if such compensation (including dividends) was an obligation in the same way as wages, then the employee would have some recourse when it's interrupted. In other words, they could sue.
- _se 7y ago
  No, they are not. The vast majority of companies do not pay dividends.
  - rsync 7y ago
    You are correct that the vast majority of publicly traded companies do not pay dividends. However, that is a small minority of all firms and I hope you will find it interesting to learn that many, many small firms' owners (Doctors offices, car dealers, liquor stores, carwashes, etc.) take regular compensation in the form of dividends. Further, I will point that in the United States, if you are an "S Corp" (and millions are) you cannot, for the most part, carry over liquid cash from one year to the next. You are forced to distribute any leftover cash, typically in the form of distributions to owners (dividends). That being said, receiving state aid on condition of suspending dividend payments makes very good sense and is the first condition I would add to such aid - you shouldn't need state aid if you are distributing profits.
    - mikorym 7y ago
      Why do a majority of publicly traded companies not pay dividends? I've noticed before that for many companies by identifier (ISIN, SEDOL, CUSIP, take your pick) that there are no dividend histories. The only example that I know the reason why is Amazon. [If you buy Amazon stock you either 1) expect dividends at some later stage or 2) plan on selling the stock for a higher price.]
      - wingspar 7y ago
        Some companies 'reinvest' profits in their operations and don't pay dividends. Others avoid dividends, as dividends are profits that are taxed twice. (Once for corporate income taxes, and again for individual income taxes.) Selling the stock for a higher price has opportunity for favorable tax treatment at the lower long-term capital gains vs dividends taxes as regular income.
        vonmoltke 7y ago
- Ididntdothis 7y ago
  If they have the money to pay out dividends then they shouldn’t need bailouts.
- deleted 7y ago
  [deleted]
- FartyMcFarter 7y ago
  I guess it depends on whether that restriction is for past dividends or ones after the crisis has started? I certainly don't think it would be appropriate to bail out a company that's throwing money out the window unnecessarily.
- DCKing 7y ago
  These measures don't imply that paying out dividends is "bad" at all?
- tsbinz 7y ago
  You pay out dividends or buy back shares if you have surplus cash, and it's hard to convey to voters that businesses with surplus cash need help I guess.
- formercoder 7y ago
  Not sure if these are loans or grants or exactly how it works, but I could see prohibiting dividends for some period after the aid. Firms should not be making distributions when they are receiving aid. But prohibiting any firm that has paid dividends is insane.
- nokicky 7y ago
  The thinking goes: A business should have enough cash to weather a storm. If you've paid out cash you have more than enough to weather a storm (and therefore don't need money). If you need money and have paid out dividends than you shouldn't have, you didn't have enough cash reserve.
  - rsync 7y ago
    No, that's not the thinking at all. As your sibling points out: "The article does a bad job at explaining it, but companies that take aid cannot pay dividends or buy back stock until they return the aid." So it has nothing to do with historical dividend payments - you just can't pay dividends while receiving the state aid.
- JoshTriplett 7y ago
  The implication is that companies should not be using the aid money to pay dividends or buy back stock, because the aid is intended to help pay employees or otherwise remain operational, not to pass through to stockholders. The article doesn't make clear whether they're using past behavior (what they did with previous government aid), present behavior (are they currently a public company established as paying dividends), or future behavior (an agreement not to pay dividends or buy back stock, in order to receive aid).
- tartrate 7y ago
  Perhaps the aids are to prevent insolvency, and perhaps dividends are illegal during insolvency. Not being sarcastic, I genuinely don't know.
- kilo_bravo_3 7y ago
  There's a lot of misinformation about this out there. The article does a bad job at explaining it, but companies that take aid cannot pay dividends or buy back stock until they return the aid. This is so that aid is not redirected into the pockets of shareholders and is instead used to keep people employed. >The Government and all parties to the Parliament agree that the extended and extended fixed cost scheme introduces a condition in the Compensation Orders that applicants, as a condition of receiving compensation for the extended period, must declare by faith and laws, that the companies will not pay dividends or buy back shares for the financial years 2020 and 2021. The condition will apply to companies that receive more than DKK 60 million. in compensation in 2020 in the compensation scheme for fixed costs. Companies will later be able to free themselves from these restrictions by repaying paid aid under this scheme in excess of DKK 60 million. Translated from: https://www.fm.dk/nyheder/pressemeddelelser/2020/04/regeringen-og-alle-folketingets-partier-er-enige-om-at-justere-og-udvide-hjaelpepakker-til-dansk-oekonomi https://www.fm.dk/nyheder/pressemeddelelser/2020/04/regering... DKK 60 million is about 8.8 million dollars. If you have money to pay dividends, you have money to pay back your government aid.
  - londons_explore 7y ago
    So why don't these conditions apply to all the aid, not just the aid after 8.8 million dollars? Otherwise it seems ripe for my company to claim 7 million dollars of aid as unsecured loans, then pay out nice big dividends claiming you are in a strong financial position because you are forecasting lots of business next year, then in 2 years time when the loan repayments become due, go bankrupt.
    - freeone3000 7y ago
      Because most companies want to exist longer than two years.
      - nerdponx 7y ago
        Bankruptcy does not mean the company dissolves.
- thisiswarry 7y ago
  the market is supposed to understand risks.
- nabla9 7y ago
  Dept payments before dividends is just a one way for a lender to secure their loans in limited companies. It counters "Heads I win, Tails you lose" -strategy where the risk of business is offloaded to lenders while owners take profits. It's common tactic in distressed companies to load the company them with debt and suck the firm try with huge dividends. Lenders are left with nothing when the company goes bankrupt.
- virvar 7y ago
  I’m Danish so I can chip in who this is targeted at. A few of our larger corporations like Danske Bank (the one from the money laundering scandals) aimed at paying out its stock owners 8,50dkr per share while simultaneously planning to fire hundreds of employees to pay for their mishaps and Covid problems. Other companies that are less evil planned similar things. Now Danske Bank is planning on using those money to secure their business going forward, and we expect some companies to follow this route. Others will go a head with their firings, like Vestas, to make sure share holders get richer. Now this is not something we actually want in Denmark. I know it’s capitalism, but our most recent election results showed a record support of our social democracy. We’ve never had less support for liberalism (which is our branch of capitalism) than we do now since the end of WW2. So we value people keeping their jobs above shareholders making money. I personally think we should be even tougher on taxing the rich. If we know companies sit in tax-havens then we should really do something about that, shouldn’t we
- deleted 7y ago
  [deleted]
- boublepop 7y ago
  If a company goes “Omg, we won’t make it this year, we need 2 billions in aid just to keep going with business as usual, not even takeing our normal 10% growth into account!?” then the government will still not pay a dime to that company if their “business as usual” includes 15 billion buy backs. The point is that companies need to take the hit on their owners and shareholders pockets first, and only then if they still need aid to survive, then the government steps in. It’s aiming to protect the bottom, not the top.
  - JoeAltmaier 7y ago
    I think of it more as somebody trying to hold a raft together, spread-eagled on the deck hanging onto the mast, the tiller, the log decking, hoping the storm passes and it all hasn't broken up yet.
- ajross 7y ago
  Dividends are, literally, the profits you're distributing to your owners. Buybacks, likewise, are giving corporate money directly to your owners (who then divest from the company in the process, of course). This isn't "bad", it's fine. It's the basic idea of how the stock market is supposed to work, we buy shares in companies we think will make money. But by definition if you have cash to distribute to your owners, you could be using that to pay salaries instead and delay or avoid layoffs and furloughs. So it's very reasonable that a government bailout policy designed to prevent job losses (and not to shore up shareholder value) would incentivize giving money to the people who are targetted and not shareholders.
- Agathos 7y ago
  It sounds like you may be assuming the dividend is required, like a debt. It isn't. A company can stop paying its dividend at any time, so Denmark isn't excluding any company. Investors will grumble when the dividend stops, but so what? The taxpayers are grumbling too. Of course some banks have recently argued that their dividends are something like debts. They argue that cutting the dividend would cause investors to panic, so they must be essential to the financial system. This is a weird argument, but if you took it seriously you would have to include dividends in their post-2008 stress tests. You would require regulatory approval before they increased the dividend, as you would if they increased their debt-to-asset ratio. https://www.bloomberg.com/opinion/articles/2020-04-06/a-virtual-internship-just-isn-t-the-same https://www.bloomberg.com/opinion/articles/2020-04-06/a-virt...
- BurningFrog 7y ago
  This is only about future behavior. If you paid dividends up to last week doesn't matter. They don't want to pay out aid to companies that then just hand the aid money out to investors.
bryanrasmussen 7y ago
Denmarks Radio guide on the different help packages https://www.dr.dk/nyheder/penge/dr-guider-gennem-junglen-af-hjaelpepakker-saadan-sikrer-du-stoette-til-din-corona https://www.dr.dk/nyheder/penge/dr-guider-gennem-junglen-af-... in Danish of course.
deleted 7y ago
[deleted]
- deleted 7y ago
  [deleted]
Ididntdothis 7y ago
That seems pretty reasonable to me. Bailout money should come with very unattractive conditions so companies use it only as last resort.
lazyjones 7y ago
Seems like this will not affect companies that funnel profits into subsidiaries in low tax countries, e.g. the Maltese Patent Box scheme. There are always some loopholes, governments should know.
ThomPete 7y ago
The irony of this is that Denmark is kind of a tax haven for international holding companies that can be tax-free.
- simongray 7y ago
  It's only ironic if you're prone to mixing up nationalities. 1. Denmark is a country in Scandinavia where they speak Danish. It's not a tax haven and it is not the country where they speak Dutch. 2. That country is called the Netherlands and that country has a tax evasion scheme named after it: https://en.wikipedia.org/wiki/Dutch_Sandwich https://en.wikipedia.org/wiki/Dutch_Sandwich
  - ThomPete 7y ago
    I am Danish, I think I'll manage to know the difference between the country I was born and raised in and the country were a lot of my friends are from. Denmark is a tax haven for holding companies.
    - simongray 7y ago
      And I am Danish too. If Denmark is indeed a tax haven it should be fairly easy for you to document that, right?
      - ThomPete 7y ago
        Read the sources I posted elsewhere. It's a well known secret of most people who know a little about tax in Denmark.
benatkin 7y ago
It could be sanity prevailing, or it could be they're counting in the US to foot the bill for international conglomerates their economy depends on.
- econ_nut 7y ago
  No need to worry. A trillion here, and a trillion there, and the US is headed for a default in the next 24 months.
  - 0xffff2 7y ago
    > and the US is headed for a default in the next 24 months. Huh? In what circumstances would the US actually choose to default rather than simply printing money?
chrismeller 7y ago
> The government also said that companies which pay out dividends, buy back own shares or are registered in tax havens won’t be eligible for any of the aid programs... Well first off, dividends are a normal method for business owners to make an income... they take all the risk, but reap some limited rewards by taking dividends rather than a salary. Buying back shares I’m fine with. While that could actually be seen as a form of “reinvesting”, I get the point. What sense does the “registered in tax havens” part make though? If they’re a foreign-registered company would they ever have been eligible for aid? Plenty of companies in Europe are employing thousands of people, but are “owned” by a company elsewhere, so how do we define that ownership and “tax haven”?
- toomuchtodo 7y ago
  Dividend and share buybacks are the same end result, just different mechanisms for enriching shareholders. If you didn’t keep enough cash on hand (because you were shoveling profits out the door), you lose your ownership interest (insolvency with no bailout). These are very reasonable conditions for a nation state bailout.
  - gruez 7y ago
    >If you didn’t keep enough cash on hand [...] This is implying you could keep enough cash on hand. Outside of tech giants, how many companies keep enough cash reserves to survive months without revenue?
    - toomuchtodo 7y ago
      There is a wide expanse between running your business razor thin as a profit extraction machine and keeping 12 months of cash reserves. This policy simply looks upon the former as a poor choice.
      - bzbarsky 7y ago
        Almost no one keeps 12 months of cash reserves. Apple, with is famous cash hoard, is around that mark.... I can't think of other large companies offhand that are.
bythckr 7y ago
> registered in tax havens won’t be eligible for any of the aid programs This just common sense, wonder why its not the standard.
Saaster 7y ago
It's a good common sense start. Companies that pay dividends or make share buy-backs are more vulnerable in a crisis (not only the current one), meaning they are riskier investments. Risk needs to be inversely correlated with reward for the markets to function. Investors in riskier companies deserve to get wiped out, not propped up. Companies registered in tax-havens should have no business applying for EU or US aid. I would say, simply barring them doesn't go far enough. If one did apply while being simultaneously registered in the EU/US and any tax haven, that is fraud and should result in jail time.
- tonyedgecombe 7y ago
  Companies that pay dividends What’s the point of a company that never pays a dividend.
  - WrtCdEvrydy 7y ago
    Most tech companies don't dividend... you buy the stock or sell it based on their current profits.
    - MiroF 7y ago
      > you buy the stock or sell it based on their current profits. Yes, based on the anticipation of future dividends and share buybacks. Stock trading is more than just gambling but for profits.
    - brtkdotse 7y ago
      I cannot for the life of me understand why’d someone who’s not an institutional investor (say Buffet) would want to own stock in a company that doesn’t pay dividends. It’s basically buying a vanity plate and hoping someone else will buy it for more down the road.
      - AnthonyMouse 7y ago
        It's because someone else does in actual fact buy it for more down the road more often than not.
gfodor 7y ago
The dividend rule is dumb. Companies who pay out dividends are actually more responsible businesses, who return capital to shareholders. Just because they generate profits doesn’t mean they are also not in need of aid to maintain operations. Certainly it makes sense to prevent them from issuing future dividends based on aid, but why a businesses ability to return profits to shareholders implies anything about their cash flows sensitivity to covid is beyond me. Not to mention, this rule will give aid to profitable companies who chose to not return those profits to shareholders, an additional bizarre distinction. That’s not to say bailout money shouldn’t be restricted, it just seems like a dumb rule. Why not delimit it based upon a company’s behavior, such as excessive risk taking or over leverage? The companies that were not anywhere near robust to financial shocks deserve to die, but dividend issuance seems a poor way to select for these.
- nemetroid 7y ago
  > Certainly it makes sense to prevent them from issuing future dividends based on aid ...which is exactly what the rule is about, see the press release from the Danish Ministry of Finance: https://www.fm.dk/nyheder/pressemeddelelser/2020/04/regeringen-og-alle-folketingets-partier-er-enige-om-at-justere-og-udvide-hjaelpepakker-til-dansk-oekonomi https://www.fm.dk/nyheder/pressemeddelelser/2020/04/regering... > Regeringen og alle Folketingets partier enige om, at der i den forlængede og udvidede ordning for faste omkostninger, indføres en betingelse i kompensations-bekendtgørelserne om, at ansøgende virksomheder som en forudsætning for at modtage kompensation i den forlængede periode på tro og love skal erklære, at virksomhederne ikke vil udbetale udbytte eller foretage aktietilbagekøb for regnskabsårene 2020 og 2021. Betingelsen vil gælde for virksomheder, der modtager mere end 60 mio. kr. i kompensation i 2020 i kompensationsordningen for faste omkostninger. Virksomheder vil senere kunne frigøre sig fra disse begrænsninger ved at tilbagebetale udbetalt støtte efter denne ordning ud over 60 mio. kr.
- randunel 7y ago
  You can pay dividends after repaying the aid money.
crazygringo 7y ago
I understand the sentiment behind no aid if you're paying dividends (if you have enough money for dividends then you clearly don't need aid), but I don't see how it can be defined in any way that seems even remotely fair. Is it whether you paid dividends recently in the past? Because remember businesses are supposed to pay dividends -- and you could have been profitable enough to pay a dividend in January but now deep in losses -- and whether they paid dividends in any particular recent timeframe can be fairly arbitrary. And if it means being prohibited from paying dividends for a period of time going forwards, this seems similarly arbitrary -- basically any business can just pause dividends, then as soon as the time period expires, and immediately or gradually pay the previous dividends they didn't. Coming up with any useful definition for whether a company deserves aid or not, short of whether they're actually filing for bankruptcy, is already incredibly difficult, but basing it on dividends is beyond simplistic. Different types of businesses have such wildly different patterns of savings and cash flows they're extremely hard to compare or draw any kind of line between "responsible" and "irresponsible" companies.
- 0xffff2 7y ago
  Based on the article, it looks like the primary form of aid is zero interest loans. It seems perfectly fair and reasonable to me that you can't pay dividends until you pay back the loan.
s_dev 7y ago
Danes obviously remember getting burned from the bailouts of bankers in 2008.
pjdemers 7y ago
Stocks that never pay dividends are technically worthless. Because a stock's value is the net present value of all future dividends.
alfor 7y ago
Is delaware a tax haven ?
- aw1621107 7y ago
  It's not on the EU list of tax havens, so it's not a haven in the eyes of Denmark's aid programs.
deleted 7y ago
[deleted]
- nononono109 7y ago
  He is elected to represent Denmark by Danes. He would be betraying his duty to his people if he put the interests of foreigners ahead of his own (there's a word for that, and dire consequences). It's refreshing to see.
yalogin 7y ago
I keep saying over and over but the economic policy is something trump fucked up big time. He gave away the corporate tax breaks in times of prosperity when there was no need and the companies just made bank. He was dealt a great hand, a strong economy that would chug along no matter who the president was. Those are the times to focus on the poor and lift people up. Instead he wasted his opportunity on the tax cuts. Someone with foresight and common sense would have saved that arrow in the quiver for a more opportune time. Now would have been a great time to use that tool. Instead the fed has to resort to unlimited money printing and zero interest. We probably will need to do that at some point but losing that one option is a mistake.
- ericmason 7y ago
  Trump cut taxes on corporate profits. That only helps when there are actually profits, so it would not do much right now.
  - sleepychu 7y ago
    Right but to cut tax you either need to be in a budget surplus, reduce your budget size or enter a budget deficit. If you do that in January then you can't use the same money again in February when things are bad.
    - RockIslandLine 7y ago
      Currency issuers are not revenue constrained. For a nation with a fiat currency, the ability to spend is distinct from the need to tax.
  - apazzolini 7y ago
    Right - it helped out a year ago when those companies used their profits to buy back stocks, giving executives piles of money, while leaving the companies broke and in need of a bailout.
  - deeth_starr_v 7y ago
    The point you're missing is that the tax cuts were unfunded and paid for by huge deficits. So that huge overhang will limit how much deficit spending politicians might undertake to offset any downturn. And they may need to raise corp taxes now and create even more drag.
1cvmask 7y ago
Why doesn’t the government just write a check to individuals and let them spend the money instead of bailing out companies in most countries?
- ajross 7y ago
  One rational reason is that there's a desire to preserve the state of the economy to speed the eventual recovery. Writing checks to a restaurant to keep its staff employed (but idle) vs. writing checks to the employees is the same from the perspective of the employees. But it also means the restaurant is going to fail. Opening the doors of an idle restaurant at the end of the lockdown is a lot cheaper and more efficient than starting up an entirely new one. A less rational reason, of course, is that the policymakers writing the bailout laws tend personally to be more affiliated with and sympathetic to business owners than employees. There is some of that too.
- sleepychu 7y ago
  Paying for fish v.s. paying for fishing rod maintenance. The idea of the aid is to preserve the economy so it can go back to generating product not pay the rent for the next few months on individuals houses.
- ativzzz 7y ago
  1. Many businesses are closed at the moment due to lockdowns 2. During a recession, people will save that money and not spend it
- nerdponx 7y ago
  In addition to the other replies: it's less costly to keep businesses solvent and just have them re-open and re-hire people in the near future, than to have a huge amount of businesses collapse and then have to start everything over again. In the USA at least, the government did write a check to individuals (below a certain annual income).
flexie 7y ago
Danish lawyer here. The proposal only limits payments to companies that have received more than DKK 60 million (around EUR 8 million) in aid. So this is not your usual business owner. These are generally larger companies with a well paid management. As for companies registered in tax havens, the EU has made an official list of tax havens, which will be followed: https://en.wikipedia.org/wiki/European_Union_tax_haven_blacklist https://en.wikipedia.org/wiki/European_Union_tax_haven_black... It's a short list and it doesn't include any countries where a large company doing business in Denmark would be registered except if they try to avoid taxes. Why should tax payers bail out a tax avoiding company? The proposal was made by a party in the opposition, which is usually seen as most business friendly ("Venstre"). Interest groups representing the businesses in Denmark support the proposal. I think it's a common sense proposal. Paying out dividends to shareholders while receiving government aid basically means having the tax payers bail out the business owners. I honestly think the proposal should go even further. The government should take a small ownership stake in companies that receive that kind of money.
- barbegal 7y ago
  If these companies aren't allowed to pay a dividend until they have paid back the government aid, isn't the government effectively taking an ownership stake?
  - dkural 7y ago
    No it's not. The government won't own any shares that benefit from an increase in share price, nor will they receive dividends. The government can only receive the government aid back. It works as a forgivable loan. Loan-holders almost always come before equity-holders, and they could require full payment before dividends to equity holders.
  - lidHanteyk 7y ago
    Ideally, as grandparent notes, yes. But no, there's an obvious way out: Instead of paying dividends, reinvest would-be outgoing cash back into the company. On the phone, claim to follow the Amazon playbook. In addition to not having to give up anything to the government, the company might find itself improving!
mjul 7y ago
The article lacks some details. If you read the Danish text detailing this from the Ministry of Commerce you will see that: Regarding buy-backs and dividends, companies receiving more than 60 million DKK in subsidy for fixed costs have to promise no buy-backs and dividends in fiscal years 2020 and 2021. If they pay back the subsidy they will be freed from this obligation. 60 million DKK is approximately 8.7 million USD or 8 million EUR. Regarding "tax havens", the legislation states that the companies receiving these subsidies have to pay their taxes according to national rules and international agreements. Companies based in EU-defined "tax havens" will not be eligible for compensation unless denying them compensation would violate EU legislation or other international agreements. You can read the press release and legislation from the Ministry of Commerce in Danish here: https://em.dk/nyhedsarkiv/2020/april/covid-19-regeringen-og-alle-folketingets-partier-er-enige-om-at-justere-og-udvide-hjaelpepakker-til-dansk-oekonomi/ https://em.dk/nyhedsarkiv/2020/april/covid-19-regeringen-og-...
LatteLazy 7y ago
Leaving aside the misleading title... I hate crappy poorly thought out measures like this. Is this a loan? If so, no dividends should be paid (or buybacks offered) until it's repaid. Otherwise companies just need to hold fire for 18m and it's free money!? And if it is a loan, there should be interest and compulsory payments after (say) 6 months. Otherwise you're bailing out companies that SHOULD go bankrupt and penalizing ones that don't. This is like when my country (the UK) bailed out banks. We got equity in exchange (smart). Then we decided to ban bonuses because politics. So we got sued and lost and had to pay them and legal costs. Then we said no more bonuses, so the good bankers, the ones that made a profit and who were not involved in the BS mortgage crap all moved to private banks. And we were left with hollow shells of companies we'd paid a fortune for.
throwawaysea 7y ago
Isn't paying out a dividend similar to just paying employees and those who should rightfully earn an income from any enterprise? I understand the need for meaningful checks and controls here, but why would this be singled out?
dang 7y ago
This submission broke HN's rules by editorializing the title. Doing that eventually causes your account to lose submission privileges on HN, so please don't do that. "Please use the original title, unless it is misleading or linkbait; don't editorialize." https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html Cherry-picking a detail from an article and making that the title is editorializing—in fact it's the leading form of editorializing. Titles are by far the biggest influence on threads, so this is a big deal. On HN, being the first to submit an article doesn't confer any special rights to frame it for everybody else. If you want to say what you think is important about an article, please do so in a comment. Then your view is on a level playing field with everyone else's. https://hn.algolia.com/?dateRange=all&page=0&prefix=false&query=by%3Adang%20%22level%20playing%20field%22&sort=byDate&type=comment https://hn.algolia.com/?dateRange=all&page=0&prefix=false&qu...
- Sammi 7y ago
  What if the cherry picked detail is the interesting detail worth discussing on hn?
  - nathanaldensr 7y ago
    Ex post facto. We can't know that until after the discussion has happened--ergo, avoiding editorialization allows community interest to happen more naturally.
  - dang 7y ago
    The official answer is: then it will make a particularly interesting comment to add to the thread. The unofficial messy answer is: sometimes, let's say 10% of the time, there are exceptions.
  - sebazzz 7y ago
    Yes, this was my reasoning. The most interesting thing of the article was the explanation why some companies wouldn't be eligible for aid - the fact that Denmark offers more aid isn't interesting, countries do that all the time now. However, excluding companies which use tax havens or pay out dividends is new. Besides, editorializing is expressing an opinion, which is not something this title is doing - or am I seeing this wrong?
tidon12 7y ago
I find these restrictions relatively frustrating because they push governments into an adversarial relationship with shareholders in a way that is unnecessary. We may not like it much, but government equity purchases are a much more aligned way to pursue a bailout. World governments (and by proxy taxpayers) should be gaining ownership or preferred rights in these deals. Then shareholders could be free to do whatever ridiculous dividend / buyback policy they want. Putting time limited bans on corporate payouts doesn't fix the incentives that lead to high payout rates in the first place. Shareholders losing 80% of their equity in a bailout would.

632 points by sebazzz 7y ago

Maybe I'm not understanding something but why do they consider paying dividends as something bad? They are essentially excluding the majority of businesses using this criteria.

Angostura 7y ago
The rationale would be that they would expect tax payers to be paid back, ahead of shareholders.
peterwoerner 7y ago
If they have excess cash to pay a dividend, why do they need a bailout?
ucosty 7y ago
If a company can still afford to pay out dividends it probably isn't really in need of aid.
- elric 7y ago
  It's probably a bit more nuanced than that. Dividends are often scheduled months in advance, based on (for instance) last year's profits. Having made a profit last year, and having promised a dividend months before corona doesn't mean you won't be struggling now.
  - Ididntdothis 7y ago
    Is the promise of dividends binding? I don’t think so.
    - brewdad 7y ago
      To my knowledge, it isn't. There is a date of ownership where the dividend eligibility is determined and then it is paid out a few weeks later. I would imagine those payouts are binding but a planned dividend for June could easily be rescinded without legal penalty. However it is priced into the value of the stock. Slashing dividends will tank the stock price. C'est la vie.
      - nradov 7y ago
        Eliminating a planned future dividend by itself would have no effect on the stock price. What would affect the stock price is the management explanation that comes along with cancelling the dividend. If they say that profits will drop even more than analysts had expected, then that would tend to cause a share price decline as it would be new information to the market. Stock prices usually drop after a dividend is payed out because each share now represents a claim on fewer assets.
    - anonymousDan 7y ago
      It's not. The stock price will likely take a hit, but such is life.
  - benburleson 7y ago
    So, the business then has the choice to use last year's profits to keep the business afloat or pay investors. Seems like an easy choice unless your only motivation is lining investor pockets.
    - chrisseaton 7y ago
      > lining investor pockets Investors are often normal people like you and me, using dividends and the sale of shares to put food on their families' tables.
      - elric 7y ago
        Indeed. The fallacy that all investors are all fat cats, swimming in money is pretty galling. When interest rates on savings accounts dropped, many regular folks took some of their savings and put into dividend paying companies. I'm sure most of them are aware that this is an investment and isn't without risk. I'm certainly not advocating for companies to pay out dividends no matter what. But the lack of nuance bothers me. Not all dividend paying companies are greedy, and not all dividend investors are wealthy.
      - calcifer 7y ago
        I've never once met a person who would otherwise go hungry if they didn't get dividends, have you? What you really mean is those "normal people" would have to sell their third car or maybe rent out their summer home without that dividend, which is just fine by me.
        1123581321 7y ago
        I know a bunch of retirees who live modestly off of dividend income, couldn’t afford a significant cut and couldn’t easily return to work. I don’t think you have broad enough experience to assume no one earns a few thousand a month from dividends and needs most of it to help pay bills.
        strictnein 7y ago
        A semi-common retirement setup is to buy relatively stable stocks that have good dividends and supply you with a 4-6% annual return.
  - KillerDiller 7y ago
    It's actually way simpler than that: the owners of a company facing crisis have the choice between providing it with additional liquidity or putting its future (and thus their stake) at risk. This is the one core manifestation of the risk they are bearing, and for which they allegedly deserve the dividends in the first place. Getting a dividend for last year's performance is the opposite of providing liquidity. If they get the cash because it was scheduled, they need to immediately put it back. If they take the cash and run, they failed to act in their own interest, and do not deserve to have their investment protected.
- chrisseaton 7y ago
  Paying a dividend is paying a person. It's like you're saying that 'as long as they can afford to keep paying employees' they don't need aid. Would you rather they stopped paying people but didn't take aid? The whole point of the aid is so they can keep going and keep paying people.
  - throwaway2048 7y ago
    Return from investment is nothing like salary.
    - chrisseaton 7y ago
      Many workers are paid a majority of their income in the form of stock from the company they work for.
      - Agathos 7y ago
        Suing your employer for wage theft because 1. They are still paying your salary, and 2. They are still granting you stock, but 3. They have suspended dividends on the shares you were granted seems like a reach. I'd definitely be interested in reading about it if someone actually tries it, though!
        chrisseaton 7y ago
        Not sure who you're replying to. I didn't mention suing anyone or any idea of wage theft.
        Agathos 7y ago
        You suggested paying a dividend was similar to paying employees. When throwaway2048 challenged this, you brought up stock-based compensation. Surely if such compensation (including dividends) was an obligation in the same way as wages, then the employee would have some recourse when it's interrupted. In other words, they could sue.
_se 7y ago
No, they are not. The vast majority of companies do not pay dividends.
- rsync 7y ago
  You are correct that the vast majority of publicly traded companies do not pay dividends. However, that is a small minority of all firms and I hope you will find it interesting to learn that many, many small firms' owners (Doctors offices, car dealers, liquor stores, carwashes, etc.) take regular compensation in the form of dividends. Further, I will point that in the United States, if you are an "S Corp" (and millions are) you cannot, for the most part, carry over liquid cash from one year to the next. You are forced to distribute any leftover cash, typically in the form of distributions to owners (dividends). That being said, receiving state aid on condition of suspending dividend payments makes very good sense and is the first condition I would add to such aid - you shouldn't need state aid if you are distributing profits.
  - mikorym 7y ago
    Why do a majority of publicly traded companies not pay dividends? I've noticed before that for many companies by identifier (ISIN, SEDOL, CUSIP, take your pick) that there are no dividend histories. The only example that I know the reason why is Amazon. [If you buy Amazon stock you either 1) expect dividends at some later stage or 2) plan on selling the stock for a higher price.]
    - wingspar 7y ago
      Some companies 'reinvest' profits in their operations and don't pay dividends. Others avoid dividends, as dividends are profits that are taxed twice. (Once for corporate income taxes, and again for individual income taxes.) Selling the stock for a higher price has opportunity for favorable tax treatment at the lower long-term capital gains vs dividends taxes as regular income.
      - vonmoltke 7y ago
Ididntdothis 7y ago
If they have the money to pay out dividends then they shouldn’t need bailouts.
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FartyMcFarter 7y ago
I guess it depends on whether that restriction is for past dividends or ones after the crisis has started? I certainly don't think it would be appropriate to bail out a company that's throwing money out the window unnecessarily.
DCKing 7y ago
These measures don't imply that paying out dividends is "bad" at all?
tsbinz 7y ago
You pay out dividends or buy back shares if you have surplus cash, and it's hard to convey to voters that businesses with surplus cash need help I guess.
formercoder 7y ago
Not sure if these are loans or grants or exactly how it works, but I could see prohibiting dividends for some period after the aid. Firms should not be making distributions when they are receiving aid. But prohibiting any firm that has paid dividends is insane.
nokicky 7y ago
The thinking goes: A business should have enough cash to weather a storm. If you've paid out cash you have more than enough to weather a storm (and therefore don't need money). If you need money and have paid out dividends than you shouldn't have, you didn't have enough cash reserve.
- rsync 7y ago
  No, that's not the thinking at all. As your sibling points out: "The article does a bad job at explaining it, but companies that take aid cannot pay dividends or buy back stock until they return the aid." So it has nothing to do with historical dividend payments - you just can't pay dividends while receiving the state aid.
JoshTriplett 7y ago
The implication is that companies should not be using the aid money to pay dividends or buy back stock, because the aid is intended to help pay employees or otherwise remain operational, not to pass through to stockholders. The article doesn't make clear whether they're using past behavior (what they did with previous government aid), present behavior (are they currently a public company established as paying dividends), or future behavior (an agreement not to pay dividends or buy back stock, in order to receive aid).
tartrate 7y ago
Perhaps the aids are to prevent insolvency, and perhaps dividends are illegal during insolvency. Not being sarcastic, I genuinely don't know.
kilo_bravo_3 7y ago
There's a lot of misinformation about this out there. The article does a bad job at explaining it, but companies that take aid cannot pay dividends or buy back stock until they return the aid. This is so that aid is not redirected into the pockets of shareholders and is instead used to keep people employed. >The Government and all parties to the Parliament agree that the extended and extended fixed cost scheme introduces a condition in the Compensation Orders that applicants, as a condition of receiving compensation for the extended period, must declare by faith and laws, that the companies will not pay dividends or buy back shares for the financial years 2020 and 2021. The condition will apply to companies that receive more than DKK 60 million. in compensation in 2020 in the compensation scheme for fixed costs. Companies will later be able to free themselves from these restrictions by repaying paid aid under this scheme in excess of DKK 60 million. Translated from: https://www.fm.dk/nyheder/pressemeddelelser/2020/04/regeringen-og-alle-folketingets-partier-er-enige-om-at-justere-og-udvide-hjaelpepakker-til-dansk-oekonomi https://www.fm.dk/nyheder/pressemeddelelser/2020/04/regering... DKK 60 million is about 8.8 million dollars. If you have money to pay dividends, you have money to pay back your government aid.
- londons_explore 7y ago
  So why don't these conditions apply to all the aid, not just the aid after 8.8 million dollars? Otherwise it seems ripe for my company to claim 7 million dollars of aid as unsecured loans, then pay out nice big dividends claiming you are in a strong financial position because you are forecasting lots of business next year, then in 2 years time when the loan repayments become due, go bankrupt.
  - freeone3000 7y ago
    Because most companies want to exist longer than two years.
    - nerdponx 7y ago
      Bankruptcy does not mean the company dissolves.
thisiswarry 7y ago
the market is supposed to understand risks.
nabla9 7y ago
Dept payments before dividends is just a one way for a lender to secure their loans in limited companies. It counters "Heads I win, Tails you lose" -strategy where the risk of business is offloaded to lenders while owners take profits. It's common tactic in distressed companies to load the company them with debt and suck the firm try with huge dividends. Lenders are left with nothing when the company goes bankrupt.
virvar 7y ago
I’m Danish so I can chip in who this is targeted at. A few of our larger corporations like Danske Bank (the one from the money laundering scandals) aimed at paying out its stock owners 8,50dkr per share while simultaneously planning to fire hundreds of employees to pay for their mishaps and Covid problems. Other companies that are less evil planned similar things. Now Danske Bank is planning on using those money to secure their business going forward, and we expect some companies to follow this route. Others will go a head with their firings, like Vestas, to make sure share holders get richer. Now this is not something we actually want in Denmark. I know it’s capitalism, but our most recent election results showed a record support of our social democracy. We’ve never had less support for liberalism (which is our branch of capitalism) than we do now since the end of WW2. So we value people keeping their jobs above shareholders making money. I personally think we should be even tougher on taxing the rich. If we know companies sit in tax-havens then we should really do something about that, shouldn’t we
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boublepop 7y ago
If a company goes “Omg, we won’t make it this year, we need 2 billions in aid just to keep going with business as usual, not even takeing our normal 10% growth into account!?” then the government will still not pay a dime to that company if their “business as usual” includes 15 billion buy backs. The point is that companies need to take the hit on their owners and shareholders pockets first, and only then if they still need aid to survive, then the government steps in. It’s aiming to protect the bottom, not the top.
- JoeAltmaier 7y ago
  I think of it more as somebody trying to hold a raft together, spread-eagled on the deck hanging onto the mast, the tiller, the log decking, hoping the storm passes and it all hasn't broken up yet.
ajross 7y ago
Dividends are, literally, the profits you're distributing to your owners. Buybacks, likewise, are giving corporate money directly to your owners (who then divest from the company in the process, of course). This isn't "bad", it's fine. It's the basic idea of how the stock market is supposed to work, we buy shares in companies we think will make money. But by definition if you have cash to distribute to your owners, you could be using that to pay salaries instead and delay or avoid layoffs and furloughs. So it's very reasonable that a government bailout policy designed to prevent job losses (and not to shore up shareholder value) would incentivize giving money to the people who are targetted and not shareholders.
Agathos 7y ago
It sounds like you may be assuming the dividend is required, like a debt. It isn't. A company can stop paying its dividend at any time, so Denmark isn't excluding any company. Investors will grumble when the dividend stops, but so what? The taxpayers are grumbling too. Of course some banks have recently argued that their dividends are something like debts. They argue that cutting the dividend would cause investors to panic, so they must be essential to the financial system. This is a weird argument, but if you took it seriously you would have to include dividends in their post-2008 stress tests. You would require regulatory approval before they increased the dividend, as you would if they increased their debt-to-asset ratio. https://www.bloomberg.com/opinion/articles/2020-04-06/a-virtual-internship-just-isn-t-the-same https://www.bloomberg.com/opinion/articles/2020-04-06/a-virt...
BurningFrog 7y ago
This is only about future behavior. If you paid dividends up to last week doesn't matter. They don't want to pay out aid to companies that then just hand the aid money out to investors.

bryanrasmussen 7y ago

Denmarks Radio guide on the different help packages https://www.dr.dk/nyheder/penge/dr-guider-gennem-junglen-af-hjaelpepakker-saadan-sikrer-du-stoette-til-din-corona https://www.dr.dk/nyheder/penge/dr-guider-gennem-junglen-af-... in Danish of course.

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Ididntdothis 7y ago

That seems pretty reasonable to me. Bailout money should come with very unattractive conditions so companies use it only as last resort.

lazyjones 7y ago

Seems like this will not affect companies that funnel profits into subsidiaries in low tax countries, e.g. the Maltese Patent Box scheme. There are always some loopholes, governments should know.

ThomPete 7y ago

The irony of this is that Denmark is kind of a tax haven for international holding companies that can be tax-free.

simongray 7y ago
It's only ironic if you're prone to mixing up nationalities. 1. Denmark is a country in Scandinavia where they speak Danish. It's not a tax haven and it is not the country where they speak Dutch. 2. That country is called the Netherlands and that country has a tax evasion scheme named after it: https://en.wikipedia.org/wiki/Dutch_Sandwich https://en.wikipedia.org/wiki/Dutch_Sandwich
- ThomPete 7y ago
  I am Danish, I think I'll manage to know the difference between the country I was born and raised in and the country were a lot of my friends are from. Denmark is a tax haven for holding companies.
  - simongray 7y ago
    And I am Danish too. If Denmark is indeed a tax haven it should be fairly easy for you to document that, right?
    - ThomPete 7y ago
      Read the sources I posted elsewhere. It's a well known secret of most people who know a little about tax in Denmark.

benatkin 7y ago

It could be sanity prevailing, or it could be they're counting in the US to foot the bill for international conglomerates their economy depends on.

econ_nut 7y ago
No need to worry. A trillion here, and a trillion there, and the US is headed for a default in the next 24 months.
- 0xffff2 7y ago
  > and the US is headed for a default in the next 24 months. Huh? In what circumstances would the US actually choose to default rather than simply printing money?

chrismeller 7y ago

> The government also said that companies which pay out dividends, buy back own shares or are registered in tax havens won’t be eligible for any of the aid programs... Well first off, dividends are a normal method for business owners to make an income... they take all the risk, but reap some limited rewards by taking dividends rather than a salary. Buying back shares I’m fine with. While that could actually be seen as a form of “reinvesting”, I get the point. What sense does the “registered in tax havens” part make though? If they’re a foreign-registered company would they ever have been eligible for aid? Plenty of companies in Europe are employing thousands of people, but are “owned” by a company elsewhere, so how do we define that ownership and “tax haven”?

toomuchtodo 7y ago
Dividend and share buybacks are the same end result, just different mechanisms for enriching shareholders. If you didn’t keep enough cash on hand (because you were shoveling profits out the door), you lose your ownership interest (insolvency with no bailout). These are very reasonable conditions for a nation state bailout.
- gruez 7y ago
  >If you didn’t keep enough cash on hand [...] This is implying you could keep enough cash on hand. Outside of tech giants, how many companies keep enough cash reserves to survive months without revenue?
  - toomuchtodo 7y ago
    There is a wide expanse between running your business razor thin as a profit extraction machine and keeping 12 months of cash reserves. This policy simply looks upon the former as a poor choice.
    - bzbarsky 7y ago
      Almost no one keeps 12 months of cash reserves. Apple, with is famous cash hoard, is around that mark.... I can't think of other large companies offhand that are.

bythckr 7y ago

> registered in tax havens won’t be eligible for any of the aid programs This just common sense, wonder why its not the standard.

Saaster 7y ago

It's a good common sense start. Companies that pay dividends or make share buy-backs are more vulnerable in a crisis (not only the current one), meaning they are riskier investments. Risk needs to be inversely correlated with reward for the markets to function. Investors in riskier companies deserve to get wiped out, not propped up. Companies registered in tax-havens should have no business applying for EU or US aid. I would say, simply barring them doesn't go far enough. If one did apply while being simultaneously registered in the EU/US and any tax haven, that is fraud and should result in jail time.

tonyedgecombe 7y ago
Companies that pay dividends What’s the point of a company that never pays a dividend.
- WrtCdEvrydy 7y ago
  Most tech companies don't dividend... you buy the stock or sell it based on their current profits.
  - MiroF 7y ago
    > you buy the stock or sell it based on their current profits. Yes, based on the anticipation of future dividends and share buybacks. Stock trading is more than just gambling but for profits.
  - brtkdotse 7y ago
    I cannot for the life of me understand why’d someone who’s not an institutional investor (say Buffet) would want to own stock in a company that doesn’t pay dividends. It’s basically buying a vanity plate and hoping someone else will buy it for more down the road.
    - AnthonyMouse 7y ago
      It's because someone else does in actual fact buy it for more down the road more often than not.

gfodor 7y ago

The dividend rule is dumb. Companies who pay out dividends are actually more responsible businesses, who return capital to shareholders. Just because they generate profits doesn’t mean they are also not in need of aid to maintain operations. Certainly it makes sense to prevent them from issuing future dividends based on aid, but why a businesses ability to return profits to shareholders implies anything about their cash flows sensitivity to covid is beyond me. Not to mention, this rule will give aid to profitable companies who chose to not return those profits to shareholders, an additional bizarre distinction. That’s not to say bailout money shouldn’t be restricted, it just seems like a dumb rule. Why not delimit it based upon a company’s behavior, such as excessive risk taking or over leverage? The companies that were not anywhere near robust to financial shocks deserve to die, but dividend issuance seems a poor way to select for these.

nemetroid 7y ago
> Certainly it makes sense to prevent them from issuing future dividends based on aid ...which is exactly what the rule is about, see the press release from the Danish Ministry of Finance: https://www.fm.dk/nyheder/pressemeddelelser/2020/04/regeringen-og-alle-folketingets-partier-er-enige-om-at-justere-og-udvide-hjaelpepakker-til-dansk-oekonomi https://www.fm.dk/nyheder/pressemeddelelser/2020/04/regering... > Regeringen og alle Folketingets partier enige om, at der i den forlængede og udvidede ordning for faste omkostninger, indføres en betingelse i kompensations-bekendtgørelserne om, at ansøgende virksomheder som en forudsætning for at modtage kompensation i den forlængede periode på tro og love skal erklære, at virksomhederne ikke vil udbetale udbytte eller foretage aktietilbagekøb for regnskabsårene 2020 og 2021. Betingelsen vil gælde for virksomheder, der modtager mere end 60 mio. kr. i kompensation i 2020 i kompensationsordningen for faste omkostninger. Virksomheder vil senere kunne frigøre sig fra disse begrænsninger ved at tilbagebetale udbetalt støtte efter denne ordning ud over 60 mio. kr.
randunel 7y ago
You can pay dividends after repaying the aid money.

crazygringo 7y ago

I understand the sentiment behind no aid if you're paying dividends (if you have enough money for dividends then you clearly don't need aid), but I don't see how it can be defined in any way that seems even remotely fair. Is it whether you paid dividends recently in the past? Because remember businesses are supposed to pay dividends -- and you could have been profitable enough to pay a dividend in January but now deep in losses -- and whether they paid dividends in any particular recent timeframe can be fairly arbitrary. And if it means being prohibited from paying dividends for a period of time going forwards, this seems similarly arbitrary -- basically any business can just pause dividends, then as soon as the time period expires, and immediately or gradually pay the previous dividends they didn't. Coming up with any useful definition for whether a company deserves aid or not, short of whether they're actually filing for bankruptcy, is already incredibly difficult, but basing it on dividends is beyond simplistic. Different types of businesses have such wildly different patterns of savings and cash flows they're extremely hard to compare or draw any kind of line between "responsible" and "irresponsible" companies.

0xffff2 7y ago
Based on the article, it looks like the primary form of aid is zero interest loans. It seems perfectly fair and reasonable to me that you can't pay dividends until you pay back the loan.

s_dev 7y ago

Danes obviously remember getting burned from the bailouts of bankers in 2008.

pjdemers 7y ago

Stocks that never pay dividends are technically worthless. Because a stock's value is the net present value of all future dividends.

alfor 7y ago

Is delaware a tax haven ?

aw1621107 7y ago
It's not on the EU list of tax havens, so it's not a haven in the eyes of Denmark's aid programs.

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nononono109 7y ago
He is elected to represent Denmark by Danes. He would be betraying his duty to his people if he put the interests of foreigners ahead of his own (there's a word for that, and dire consequences). It's refreshing to see.

yalogin 7y ago

I keep saying over and over but the economic policy is something trump fucked up big time. He gave away the corporate tax breaks in times of prosperity when there was no need and the companies just made bank. He was dealt a great hand, a strong economy that would chug along no matter who the president was. Those are the times to focus on the poor and lift people up. Instead he wasted his opportunity on the tax cuts. Someone with foresight and common sense would have saved that arrow in the quiver for a more opportune time. Now would have been a great time to use that tool. Instead the fed has to resort to unlimited money printing and zero interest. We probably will need to do that at some point but losing that one option is a mistake.

ericmason 7y ago
Trump cut taxes on corporate profits. That only helps when there are actually profits, so it would not do much right now.
- sleepychu 7y ago
  Right but to cut tax you either need to be in a budget surplus, reduce your budget size or enter a budget deficit. If you do that in January then you can't use the same money again in February when things are bad.
  - RockIslandLine 7y ago
    Currency issuers are not revenue constrained. For a nation with a fiat currency, the ability to spend is distinct from the need to tax.
- apazzolini 7y ago
  Right - it helped out a year ago when those companies used their profits to buy back stocks, giving executives piles of money, while leaving the companies broke and in need of a bailout.
- deeth_starr_v 7y ago
  The point you're missing is that the tax cuts were unfunded and paid for by huge deficits. So that huge overhang will limit how much deficit spending politicians might undertake to offset any downturn. And they may need to raise corp taxes now and create even more drag.

1cvmask 7y ago

Why doesn’t the government just write a check to individuals and let them spend the money instead of bailing out companies in most countries?

ajross 7y ago
One rational reason is that there's a desire to preserve the state of the economy to speed the eventual recovery. Writing checks to a restaurant to keep its staff employed (but idle) vs. writing checks to the employees is the same from the perspective of the employees. But it also means the restaurant is going to fail. Opening the doors of an idle restaurant at the end of the lockdown is a lot cheaper and more efficient than starting up an entirely new one. A less rational reason, of course, is that the policymakers writing the bailout laws tend personally to be more affiliated with and sympathetic to business owners than employees. There is some of that too.
sleepychu 7y ago
Paying for fish v.s. paying for fishing rod maintenance. The idea of the aid is to preserve the economy so it can go back to generating product not pay the rent for the next few months on individuals houses.
ativzzz 7y ago
1. Many businesses are closed at the moment due to lockdowns 2. During a recession, people will save that money and not spend it
nerdponx 7y ago
In addition to the other replies: it's less costly to keep businesses solvent and just have them re-open and re-hire people in the near future, than to have a huge amount of businesses collapse and then have to start everything over again. In the USA at least, the government did write a check to individuals (below a certain annual income).

flexie 7y ago

Danish lawyer here. The proposal only limits payments to companies that have received more than DKK 60 million (around EUR 8 million) in aid. So this is not your usual business owner. These are generally larger companies with a well paid management. As for companies registered in tax havens, the EU has made an official list of tax havens, which will be followed: https://en.wikipedia.org/wiki/European_Union_tax_haven_blacklist https://en.wikipedia.org/wiki/European_Union_tax_haven_black... It's a short list and it doesn't include any countries where a large company doing business in Denmark would be registered except if they try to avoid taxes. Why should tax payers bail out a tax avoiding company? The proposal was made by a party in the opposition, which is usually seen as most business friendly ("Venstre"). Interest groups representing the businesses in Denmark support the proposal. I think it's a common sense proposal. Paying out dividends to shareholders while receiving government aid basically means having the tax payers bail out the business owners. I honestly think the proposal should go even further. The government should take a small ownership stake in companies that receive that kind of money.

barbegal 7y ago
If these companies aren't allowed to pay a dividend until they have paid back the government aid, isn't the government effectively taking an ownership stake?
- dkural 7y ago
  No it's not. The government won't own any shares that benefit from an increase in share price, nor will they receive dividends. The government can only receive the government aid back. It works as a forgivable loan. Loan-holders almost always come before equity-holders, and they could require full payment before dividends to equity holders.
- lidHanteyk 7y ago
  Ideally, as grandparent notes, yes. But no, there's an obvious way out: Instead of paying dividends, reinvest would-be outgoing cash back into the company. On the phone, claim to follow the Amazon playbook. In addition to not having to give up anything to the government, the company might find itself improving!

mjul 7y ago

The article lacks some details. If you read the Danish text detailing this from the Ministry of Commerce you will see that: Regarding buy-backs and dividends, companies receiving more than 60 million DKK in subsidy for fixed costs have to promise no buy-backs and dividends in fiscal years 2020 and 2021. If they pay back the subsidy they will be freed from this obligation. 60 million DKK is approximately 8.7 million USD or 8 million EUR. Regarding "tax havens", the legislation states that the companies receiving these subsidies have to pay their taxes according to national rules and international agreements. Companies based in EU-defined "tax havens" will not be eligible for compensation unless denying them compensation would violate EU legislation or other international agreements. You can read the press release and legislation from the Ministry of Commerce in Danish here: https://em.dk/nyhedsarkiv/2020/april/covid-19-regeringen-og-alle-folketingets-partier-er-enige-om-at-justere-og-udvide-hjaelpepakker-til-dansk-oekonomi/ https://em.dk/nyhedsarkiv/2020/april/covid-19-regeringen-og-...

LatteLazy 7y ago

Leaving aside the misleading title... I hate crappy poorly thought out measures like this. Is this a loan? If so, no dividends should be paid (or buybacks offered) until it's repaid. Otherwise companies just need to hold fire for 18m and it's free money!? And if it is a loan, there should be interest and compulsory payments after (say) 6 months. Otherwise you're bailing out companies that SHOULD go bankrupt and penalizing ones that don't. This is like when my country (the UK) bailed out banks. We got equity in exchange (smart). Then we decided to ban bonuses because politics. So we got sued and lost and had to pay them and legal costs. Then we said no more bonuses, so the good bankers, the ones that made a profit and who were not involved in the BS mortgage crap all moved to private banks. And we were left with hollow shells of companies we'd paid a fortune for.

throwawaysea 7y ago

Isn't paying out a dividend similar to just paying employees and those who should rightfully earn an income from any enterprise? I understand the need for meaningful checks and controls here, but why would this be singled out?

dang 7y ago

This submission broke HN's rules by editorializing the title. Doing that eventually causes your account to lose submission privileges on HN, so please don't do that. "Please use the original title, unless it is misleading or linkbait; don't editorialize." https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html Cherry-picking a detail from an article and making that the title is editorializing—in fact it's the leading form of editorializing. Titles are by far the biggest influence on threads, so this is a big deal. On HN, being the first to submit an article doesn't confer any special rights to frame it for everybody else. If you want to say what you think is important about an article, please do so in a comment. Then your view is on a level playing field with everyone else's. https://hn.algolia.com/?dateRange=all&page=0&prefix=false&query=by%3Adang%20%22level%20playing%20field%22&sort=byDate&type=comment https://hn.algolia.com/?dateRange=all&page=0&prefix=false&qu...

Sammi 7y ago
What if the cherry picked detail is the interesting detail worth discussing on hn?
- nathanaldensr 7y ago
  Ex post facto. We can't know that until after the discussion has happened--ergo, avoiding editorialization allows community interest to happen more naturally.
- dang 7y ago
  The official answer is: then it will make a particularly interesting comment to add to the thread. The unofficial messy answer is: sometimes, let's say 10% of the time, there are exceptions.
- sebazzz 7y ago
  Yes, this was my reasoning. The most interesting thing of the article was the explanation why some companies wouldn't be eligible for aid - the fact that Denmark offers more aid isn't interesting, countries do that all the time now. However, excluding companies which use tax havens or pay out dividends is new. Besides, editorializing is expressing an opinion, which is not something this title is doing - or am I seeing this wrong?

tidon12 7y ago

I find these restrictions relatively frustrating because they push governments into an adversarial relationship with shareholders in a way that is unnecessary. We may not like it much, but government equity purchases are a much more aligned way to pursue a bailout. World governments (and by proxy taxpayers) should be gaining ownership or preferred rights in these deals. Then shareholders could be free to do whatever ridiculous dividend / buyback policy they want. Putting time limited bans on corporate payouts doesn't fix the incentives that lead to high payout rates in the first place. Shareholders losing 80% of their equity in a bailout would.