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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 yo

by flexie 6y 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 6y 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 6y 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 6y 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!
rozab 6y ago
Interestingly that list contained Greenland until very recently. EU countries are also not included in the list, so no Luxembourg etc
d0100 6y ago
> The government should take a small ownership stake in companies that receive that kind of money. This sounds absolutely reasonable. Bail them out by being some sort of "angel investor" and get a piece of the company
- arethuza 6y ago
  That's what the UK government did with some of the banks here in 2008 - although in the case of RBS, HMG ended up with a 58% stake.
netcan 6y ago
What is the positive criteria? Who gets aid, and how is the amount calculated? It's somewhat surprising that foreign company would be eligible at all. Also, I'm skeptical of "common sense rules" being effectively implementable. Company A1 owns intellectual property like trademarks and patents, registered in a tax haven. Company A2 manufactures & markets products in the consumer country. A2 could be paying licence fees to A1. A1 could be contracting A2 to do manufacturing and marketing. Either way, the idea is that A2 never makes profits. Any profits are made in A1, which also has no expenses. This is/was Google & Apple's structure, with Ireland as the tax haven. This is a simple example. Reality is usually more complex. It is generally hard/impossible to pick these knots apart. IDK of any country with corporate tax rules/enforcement that has picked it apart. Lots have tried. How did denmark do this.
- barkingcat 6y ago
  If you think at all about why a company was registered in a tax haven to begin with, then it's clear that they shouldn't even be in a line to get bailouts from "foreign entities" (from the point of view of the company) at all. If a company wants to be eligible for benefits inside a country, they have to follow all the laws. No ifs, buts, ands. If you feel that the company is "doing good work" why not ask them to be registered in the country to begin with? OR better - move headquarters into the country being discussed (or have that be a condition for receiving bailout funds). All this said, I think it's up to the government of the Tax Havens themselves to support these companies. These tax havens derive significant benefit from being used in this way. It's time for the tax haven to step up and provide funding for support during this challenging time.
  - dev_tty01 6y ago
    >>If a company wants to be eligible for benefits inside a country, they have to follow all the laws. Minimizing tax liability is not necessarily doing anything outside the law.
    - wool_gather 6y ago
      I don't think that's quite what parent meant. There's a difference between "Does not break any rules" and "Follows all the rules" Where the gap is in whether the entity is subject to the rules. You are correct that one that isn't subject to the rules is right to not follow them. But, where the outcome of those rules incurs some benefit, why should the non-subject incur it?
oconnor663 6y ago
> Why should tax payers bail out a tax avoiding company? I think that depends on our answer to the prior question, "Why should tax payers bail out any company?" If the answer is "because we like them and we feel a patriotic/moral/righteous duty to help them", then the distinction between tax-paying and tax-avoiding companies does seem relevant. But if the answer is "to help workers keep their jobs", then the distinction might not be relevant.
- sanderjd 6y ago
  What if the answer is "to strike a balance between many workers being able to keep their jobs and disincentivizing tax-avoidance"?
  - oconnor663 6y ago
    That could be the real answer, for sure. Or the aggregate answer, maybe, in the sense of "we need to do X, but can't do too much of Y, because then voters will notice and get angry." In that case, it might not be a deliberate choice at all, just the reality of politics in a democracy. If it was a deliberate choice, my instinct would be that designing one policy with a dual mandate sounds a lot more complicated and less effective than designing two policies. It's a lot simpler to target a bailout to saving jobs only, say, and then separately change the tax code to disincentivize tax havens. That would also separate the part that needs to be done urgently, from the part we could do whenever.
  - jmckib 6y ago
    The best way to disincentive tax avoidance would be to not allow it in the first place. A one-off policy like this punishes tax avoidance without necessarily discouraging it in the future. It depends on how likely businesses think it is for something like this to happen again.
    - cies 6y ago
      I think there is a lot of lobbying for tax avoidance. But maybe that's just my perception of govts using democracy as a banner while in reality policy is much more influenced by lobby effort than voters sentiment.
thrill 6y ago
So, companies acting completely legally by seeking to minimize their tax burden, which serves to further maximize the money available for their owners, get penalized. Likewise, companies acting completely ethically, by returning much of their profit to their shareholders via dividends instead of hoarding it themselves get penalized. And this gets celebrated?
- BeetleB 6y ago
  I think you'll find a lot of people do not agree with your definition of "penalized". Not giving something to someone who was never entitled to it is not penalizing. > So, companies acting completely legally by seeking to minimize their tax burden, which serves to further maximize the money available for their owners, get penalized It's fairly simple. If you don't want to pay the government, the government doesn't want to pay you. Just as you are acting legally in tax avoidance, they are acting legally in not bailing you out. > Likewise, companies acting completely ethically, by returning much of their profit to their shareholders via dividends instead of hoarding it themselves get penalized. This did strike me as strange, but there are several interpretations. As an example, if you're doing well enough to be paying dividends, you don't need to be bailed out.
  - thrill 6y ago
    IF someone is offered an advantage not offered to me then I have been penalized.
    - gbear605 6y ago
      The rules: 1. You can incorporate in a tax-advantaged state ("tax haven") and not get benefits ("bail outs") 2. You can incorporate in a non-tax-advantaged state (eg. Denkmark) and get benefits ("bail outs") Your company has chosen option 1 but you are claiming that your company is being penalized because you can't get the benefits of both options.
    - akamaozu 6y ago
      Do you feel penalized every time you can't park in a convenient parking spot because it's reserved for people with mobility issues?
ThomPete 6y ago
Denmark is a tax haven itself though.
- drsim 6y ago
  I strongly doubt it. The corporate tax provisions are stricter than most developed economies. All indexes I've seen have Denmark pretty far down tax haven friendliness. Genuinely curious on your source.
  - Erwin 6y ago
    There is a type of company structure similar to a limited partnership, but where the ownership was anonymous: https://en.wikipedia.org/wiki/Kommanditselskab https://en.wikipedia.org/wiki/Kommanditselskab That was apparently misused by a relatively small companies abroad, where passing profits through this company would keep the information from the right authorities. Not really sure what happened with the case, new rulesets were applied to combat potential abuse. Another high profile case was the "Danish Bank" (not to be confused with the national Bank of Denmark) which was involved in some huge money laundering in Estonia, potentially allowing as much as 200 billion EUR pass through it without asking too many questions. A report from the Tax Justice Network: https://fsi.taxjustice.net/PDF/Denmark.pdf https://fsi.taxjustice.net/PDF/Denmark.pdf
    - drsim 6y ago
      Thank you. I was aware of the money laundering. What Danske Bank did is under investigation for being illegal under 'hvidvaskloven'. Let's see how that goes, but the company and its directors are expected to face consequences. That case has nothing to do with a 'tax haven', unless a pattern is formed and the authorities turn a blind eye. I didn't know about the Kommanditselskab company form. It does appear to have been abused, but I can see this is something the tax authorities are on the case with. Link in Danish to a report from 2016: https://www.ft.dk/samling/20151/almdel/SAU/bilag/165/1619506/index.htm https://www.ft.dk/samling/20151/almdel/SAU/bilag/165/1619506... How possible it is to act as a tax have and how friendly a country is to be used like that is a spectrum. The Tax Justice Network report you linked puts Denmark very low on that ranking and tiny (their word) in volume.
caseysoftware 6y ago
> The government should take a small ownership stake in companies that receive that kind of money. I'm only familiar with US law, not Danish so question for you here. Under US law, when a company closes (bankruptcy, acquired, etc), the common shareholders are last in line for payments after debt holders and preferred shareholders. Does Danish law have a similar provision? If so, wouldn't being a debtor be a stronger position? Especially since the governments get to set repayment terms.
- flexie 6y ago
  Yes, if we look at the bankruptcy scenario only (and provided the debt is not secured). But the shareholder is typically better off if there is an upside. What we saw in the last financial crisis is that large corporations quickly paid off their loans and the government - the taxpayers - missed out on the upside. The natural way to give government ownership would be through convertibles so they could chose whether to convert.
  - caseysoftware 6y ago
    That makes total sense, thanks for the info and perspective.
markus_zhang 6y ago
I totally agree with you, especially the last point. Not only that, any company that has an excessive amount of cash or cash-like securities (e.g. Apple) should not receive state-aid. Of course Apple is not asking but it's just an example. We should further limit the salary of management once they receive aid.
dehrmann 6y ago
> Why should tax payers bail out a tax avoiding company? Tax avoidance also tends to be on profits. A lot of companies in the US have done corporate inversions, but they're still paying local payroll, property, and sales taxes. Freezing dividends and buybacks punishes the people who benefited from the tax avoidance, but you have to be careful not to do this at the expense of workers. The other argument, and this is from a US perspective, is you're pushing 20% unemployment, why are you wasting your time promoting your political passion project? Spend the money, ask questions later.
- greendave 6y ago
  I think the response would be that most of these governments* are not spending the money to keep the businesses open - they're spending it to keep employees solvent. To accomplish that, not all businesses need to be saved. *The USA is an obvious exception where for at least a substantial group of people, the purpose is to keep the businesses intact. They really couldn't care less about the employees.
  - rpiguy 6y ago
    There are 30.2 million small businesses in the US, which comprise a whopping 99.9% of all United States businesses and make up for the lion's share of employment. This is very different from Europe. By bailing out the small business owners, you have a better chance at maintaining employment or for employment to re-emerge after a crisis. Small business ownership is also a huge source of middle class wealth here in the US. Bailing out small business is essentially bailing out 30 million owner/employers and preserving their middle class wealth. Obviously big businesses get bailouts here as well, and I happen to agree that if they use money for buy backs, dividends, etc. they should not get stimulus money.
    - sfkdjf9j3j 6y ago
      Those stats are a little misleading. Only 18% of employees work at businesses with fewer than 20 employees. And of course most businesses are smaller - it's a lot easier to spend an afternoon filling out "LLC in a box" forms than it is to create a "large" business!
eloff 6y ago
These days dividends are less popular than share buybacks (in part because the former is taxed as income and the latter as deferred capital gains taxed at the time of sale). I hope politicians weren't sufficiently stupid as to close one avenue and leave the other wide open.
planar_vector 6y ago
The list of EU defined tax havens is intentionally incomplete without including Ireland, Malta and Switzerland. https://timesofmalta.com/articles/view/malta-a-fiscal-black-hole-says-oxfam.704863 https://timesofmalta.com/articles/view/malta-a-fiscal-black-...
- saiya-jin 6y ago
  and English Channel islands, London, Luxembourg, for some purposes Netherlands and so on. Heck, even Denmark is often rated as tax haven because of certain advantages [1] [1] https://www.investopedia.com/articles/wealth-management/121515/top-10-european-tax-havens.asp https://www.investopedia.com/articles/wealth-management/1215...
kortilla 6y ago
> Why should tax payers bail out a tax avoiding company? Because every company optimizes its tax burden. “Tax Avoidance” is an arbitrary political clap trap to drum up outrage.

by flexie 6y ago

barbegal 6y 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 6y 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 6y 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!

rozab 6y ago

Interestingly that list contained Greenland until very recently. EU countries are also not included in the list, so no Luxembourg etc

d0100 6y ago

> The government should take a small ownership stake in companies that receive that kind of money. This sounds absolutely reasonable. Bail them out by being some sort of "angel investor" and get a piece of the company

arethuza 6y ago
That's what the UK government did with some of the banks here in 2008 - although in the case of RBS, HMG ended up with a 58% stake.

netcan 6y ago

What is the positive criteria? Who gets aid, and how is the amount calculated? It's somewhat surprising that foreign company would be eligible at all. Also, I'm skeptical of "common sense rules" being effectively implementable. Company A1 owns intellectual property like trademarks and patents, registered in a tax haven. Company A2 manufactures & markets products in the consumer country. A2 could be paying licence fees to A1. A1 could be contracting A2 to do manufacturing and marketing. Either way, the idea is that A2 never makes profits. Any profits are made in A1, which also has no expenses. This is/was Google & Apple's structure, with Ireland as the tax haven. This is a simple example. Reality is usually more complex. It is generally hard/impossible to pick these knots apart. IDK of any country with corporate tax rules/enforcement that has picked it apart. Lots have tried. How did denmark do this.

barkingcat 6y ago
If you think at all about why a company was registered in a tax haven to begin with, then it's clear that they shouldn't even be in a line to get bailouts from "foreign entities" (from the point of view of the company) at all. If a company wants to be eligible for benefits inside a country, they have to follow all the laws. No ifs, buts, ands. If you feel that the company is "doing good work" why not ask them to be registered in the country to begin with? OR better - move headquarters into the country being discussed (or have that be a condition for receiving bailout funds). All this said, I think it's up to the government of the Tax Havens themselves to support these companies. These tax havens derive significant benefit from being used in this way. It's time for the tax haven to step up and provide funding for support during this challenging time.
- dev_tty01 6y ago
  >>If a company wants to be eligible for benefits inside a country, they have to follow all the laws. Minimizing tax liability is not necessarily doing anything outside the law.
  - wool_gather 6y ago
    I don't think that's quite what parent meant. There's a difference between "Does not break any rules" and "Follows all the rules" Where the gap is in whether the entity is subject to the rules. You are correct that one that isn't subject to the rules is right to not follow them. But, where the outcome of those rules incurs some benefit, why should the non-subject incur it?

oconnor663 6y ago

> Why should tax payers bail out a tax avoiding company? I think that depends on our answer to the prior question, "Why should tax payers bail out any company?" If the answer is "because we like them and we feel a patriotic/moral/righteous duty to help them", then the distinction between tax-paying and tax-avoiding companies does seem relevant. But if the answer is "to help workers keep their jobs", then the distinction might not be relevant.

sanderjd 6y ago
What if the answer is "to strike a balance between many workers being able to keep their jobs and disincentivizing tax-avoidance"?
- oconnor663 6y ago
  That could be the real answer, for sure. Or the aggregate answer, maybe, in the sense of "we need to do X, but can't do too much of Y, because then voters will notice and get angry." In that case, it might not be a deliberate choice at all, just the reality of politics in a democracy. If it was a deliberate choice, my instinct would be that designing one policy with a dual mandate sounds a lot more complicated and less effective than designing two policies. It's a lot simpler to target a bailout to saving jobs only, say, and then separately change the tax code to disincentivize tax havens. That would also separate the part that needs to be done urgently, from the part we could do whenever.
- jmckib 6y ago
  The best way to disincentive tax avoidance would be to not allow it in the first place. A one-off policy like this punishes tax avoidance without necessarily discouraging it in the future. It depends on how likely businesses think it is for something like this to happen again.
  - cies 6y ago
    I think there is a lot of lobbying for tax avoidance. But maybe that's just my perception of govts using democracy as a banner while in reality policy is much more influenced by lobby effort than voters sentiment.

thrill 6y ago

So, companies acting completely legally by seeking to minimize their tax burden, which serves to further maximize the money available for their owners, get penalized. Likewise, companies acting completely ethically, by returning much of their profit to their shareholders via dividends instead of hoarding it themselves get penalized. And this gets celebrated?

BeetleB 6y ago
I think you'll find a lot of people do not agree with your definition of "penalized". Not giving something to someone who was never entitled to it is not penalizing. > So, companies acting completely legally by seeking to minimize their tax burden, which serves to further maximize the money available for their owners, get penalized It's fairly simple. If you don't want to pay the government, the government doesn't want to pay you. Just as you are acting legally in tax avoidance, they are acting legally in not bailing you out. > Likewise, companies acting completely ethically, by returning much of their profit to their shareholders via dividends instead of hoarding it themselves get penalized. This did strike me as strange, but there are several interpretations. As an example, if you're doing well enough to be paying dividends, you don't need to be bailed out.
- thrill 6y ago
  IF someone is offered an advantage not offered to me then I have been penalized.
  - gbear605 6y ago
    The rules: 1. You can incorporate in a tax-advantaged state ("tax haven") and not get benefits ("bail outs") 2. You can incorporate in a non-tax-advantaged state (eg. Denkmark) and get benefits ("bail outs") Your company has chosen option 1 but you are claiming that your company is being penalized because you can't get the benefits of both options.
  - akamaozu 6y ago
    Do you feel penalized every time you can't park in a convenient parking spot because it's reserved for people with mobility issues?

ThomPete 6y ago

Denmark is a tax haven itself though.

drsim 6y ago
I strongly doubt it. The corporate tax provisions are stricter than most developed economies. All indexes I've seen have Denmark pretty far down tax haven friendliness. Genuinely curious on your source.
- Erwin 6y ago
  There is a type of company structure similar to a limited partnership, but where the ownership was anonymous: https://en.wikipedia.org/wiki/Kommanditselskab https://en.wikipedia.org/wiki/Kommanditselskab That was apparently misused by a relatively small companies abroad, where passing profits through this company would keep the information from the right authorities. Not really sure what happened with the case, new rulesets were applied to combat potential abuse. Another high profile case was the "Danish Bank" (not to be confused with the national Bank of Denmark) which was involved in some huge money laundering in Estonia, potentially allowing as much as 200 billion EUR pass through it without asking too many questions. A report from the Tax Justice Network: https://fsi.taxjustice.net/PDF/Denmark.pdf https://fsi.taxjustice.net/PDF/Denmark.pdf
  - drsim 6y ago
    Thank you. I was aware of the money laundering. What Danske Bank did is under investigation for being illegal under 'hvidvaskloven'. Let's see how that goes, but the company and its directors are expected to face consequences. That case has nothing to do with a 'tax haven', unless a pattern is formed and the authorities turn a blind eye. I didn't know about the Kommanditselskab company form. It does appear to have been abused, but I can see this is something the tax authorities are on the case with. Link in Danish to a report from 2016: https://www.ft.dk/samling/20151/almdel/SAU/bilag/165/1619506/index.htm https://www.ft.dk/samling/20151/almdel/SAU/bilag/165/1619506... How possible it is to act as a tax have and how friendly a country is to be used like that is a spectrum. The Tax Justice Network report you linked puts Denmark very low on that ranking and tiny (their word) in volume.

caseysoftware 6y ago

> The government should take a small ownership stake in companies that receive that kind of money. I'm only familiar with US law, not Danish so question for you here. Under US law, when a company closes (bankruptcy, acquired, etc), the common shareholders are last in line for payments after debt holders and preferred shareholders. Does Danish law have a similar provision? If so, wouldn't being a debtor be a stronger position? Especially since the governments get to set repayment terms.

flexie 6y ago
Yes, if we look at the bankruptcy scenario only (and provided the debt is not secured). But the shareholder is typically better off if there is an upside. What we saw in the last financial crisis is that large corporations quickly paid off their loans and the government - the taxpayers - missed out on the upside. The natural way to give government ownership would be through convertibles so they could chose whether to convert.
- caseysoftware 6y ago
  That makes total sense, thanks for the info and perspective.

markus_zhang 6y ago

I totally agree with you, especially the last point. Not only that, any company that has an excessive amount of cash or cash-like securities (e.g. Apple) should not receive state-aid. Of course Apple is not asking but it's just an example. We should further limit the salary of management once they receive aid.

dehrmann 6y ago

> Why should tax payers bail out a tax avoiding company? Tax avoidance also tends to be on profits. A lot of companies in the US have done corporate inversions, but they're still paying local payroll, property, and sales taxes. Freezing dividends and buybacks punishes the people who benefited from the tax avoidance, but you have to be careful not to do this at the expense of workers. The other argument, and this is from a US perspective, is you're pushing 20% unemployment, why are you wasting your time promoting your political passion project? Spend the money, ask questions later.

greendave 6y ago
I think the response would be that most of these governments* are not spending the money to keep the businesses open - they're spending it to keep employees solvent. To accomplish that, not all businesses need to be saved. *The USA is an obvious exception where for at least a substantial group of people, the purpose is to keep the businesses intact. They really couldn't care less about the employees.
- rpiguy 6y ago
  There are 30.2 million small businesses in the US, which comprise a whopping 99.9% of all United States businesses and make up for the lion's share of employment. This is very different from Europe. By bailing out the small business owners, you have a better chance at maintaining employment or for employment to re-emerge after a crisis. Small business ownership is also a huge source of middle class wealth here in the US. Bailing out small business is essentially bailing out 30 million owner/employers and preserving their middle class wealth. Obviously big businesses get bailouts here as well, and I happen to agree that if they use money for buy backs, dividends, etc. they should not get stimulus money.
  - sfkdjf9j3j 6y ago
    Those stats are a little misleading. Only 18% of employees work at businesses with fewer than 20 employees. And of course most businesses are smaller - it's a lot easier to spend an afternoon filling out "LLC in a box" forms than it is to create a "large" business!

eloff 6y ago

These days dividends are less popular than share buybacks (in part because the former is taxed as income and the latter as deferred capital gains taxed at the time of sale). I hope politicians weren't sufficiently stupid as to close one avenue and leave the other wide open.

planar_vector 6y ago

The list of EU defined tax havens is intentionally incomplete without including Ireland, Malta and Switzerland. https://timesofmalta.com/articles/view/malta-a-fiscal-black-hole-says-oxfam.704863 https://timesofmalta.com/articles/view/malta-a-fiscal-black-...

saiya-jin 6y ago
and English Channel islands, London, Luxembourg, for some purposes Netherlands and so on. Heck, even Denmark is often rated as tax haven because of certain advantages [1] [1] https://www.investopedia.com/articles/wealth-management/121515/top-10-european-tax-havens.asp https://www.investopedia.com/articles/wealth-management/1215...

kortilla 6y ago

> Why should tax payers bail out a tax avoiding company? Because every company optimizes its tax burden. “Tax Avoidance” is an arbitrary political clap trap to drum up outrage.