State pays Corona aid to tax tricksters

State pays Corona aid to tax tricksters
The Cayman Islands are a well-known tax haven. But there are also some in Europe.
Thousands of companies want help from the state during the Corona crisis. The state of their tax morale is not under scrutiny.

By Frederik Obermaier, Klaus Ott, Meike Schreiber, Jan Willmroth and Nils Wischmeyer

[This article published on 4/22/2020 is translated from the German on the Internet, Coronavirus: Staat zahlt Hilfen an Steuer-Trickser.]




Coronavirus: Staat zahlt Hilfen an Steuer-Trickser

Frederik Obermaier

Tausende Unternehmen wollen während der Corona-Krise Hilfe vom Staat. Wie es um deren Steuermoral steht, wird ...



They are supposed to be little tricks: sometimes the profits of a group of companies are booked to a subsidiary in Malta or the Netherlands, sometimes German real estate belongs to an actually German company at least on paper to a company in Luxembourg. Often the tax tricks are legal, sometimes even experts are not sure, but one thing is for sure: the German state loses billions every year as a result. Money that is now missing in the Corona crisis.

Especially large, internationally operating companies from various industries use such tricks or have at least done so excessively. And now that Corona is paralyzing large parts of the economy, the federal and state governments are receiving applications for aid in droves. Even companies that were previously in perfect health are not immune to the consequences of the virus and are seeking guarantees, warranties or billion-euro loans from the state bank KfW. A lot is being examined by the authorities. But one thing is hardly ever examined when public funds are granted, as a survey of the federal states by the SZ, NDR and WDR has shown: how companies keep up their tax morale.

Anyone who has problems with the tax authorities in NRW cannot apply for a state guarantee

For most ministries in Germany this is not an issue, elsewhere it is. Denmark and Poland have announced that they will not pay out corona aid to companies based in tax havens.

In Denmark, this is part of an agreement signed at the weekend by all parties represented in parliament. Economic Affairs Minister Simon Kollerup of the Social Democrats is concerned about fundamental issues. "I think it is a sensible principle that you cannot ask Danish society for help one day and then turn your back on it the next and send the money to a country that is on the EU's list of tax havens," he says. "It's just not fair." The idea is to cut off notorious tax evaders from state aid. How strictly Denmark intends to proceed is still open. But the message is clear: tax avoidance and state aid are not compatible.

The Greens and the Left Party in the Bundestag see things similarly. "When corporations apply for state aid, they are accountable to the taxpayer. Holding out your hand but parking profits in tax havens is not an option," says left-wing politician Fabio De Masi. "It should make us wonder if it is those companies that, in some cases, were the loudest calling for help before the crisis by aggressively avoiding taxes, who had avoided making their contribution to the common good," says Lisa Paus, head of the Greens on the finance committee. On Wednesday, her group requested that no state aid be granted to companies registered in a tax haven for tax avoidance.

The reality at present is that the state is not using the immense corona aid to finally take consistent action with strict conditions against an unfortunate practice that some companies still practice today: privatize profits and pool losses. There would be opportunities to do so. For example, the Federal Economic Stabilization Fund Act, or WStFG for short. Five letters that stand for 600 billion euros. With financial guarantees, state participations and loans on this scale, the Federal Government wants to save as many companies as possible from the Corona bankruptcy. According to the WStFG Act, companies that are helped in this way must "guarantee a sound and prudent business policy". The law mentions as possible conditions such as a limit on the remuneration of the management board.

It would also be conceivable to prohibit the use of tax loopholes. However, such ideas have not yet found a majority in Berlin. Anyone who wants to find approaches of this kind must look to North Rhine-Westphalia. There is a special feature in the state's regulations for guarantees. It states that companies that want support must be "trustworthy". An applicant is expected to "meet his tax obligations". The version of the guarantee rules in which this is stated dates back to 2016, when the SPD and the Greens still ruled in NRW.

The Ministry of Economic Affairs in Düsseldorf, which is headed by FDP politician Andreas Pinkwart today, draws a clear conclusion from this: companies that have "unregulated arrears" with the tax authorities or that are under investigation for tax offenses cannot apply for state guarantees. This was announced by the ministry upon request.

The situation is similar in Thuringia. The Ministry of Finance stated that 'the fulfillment of tax obligations is taken into account in the approval procedure for guarantees and warranties issued by the Free State of Thuringia'. The Ministry of Economics in Mecklenburg-Western Pomerania explained that applicants for guarantees had to confirm "that no criminal tax proceedings are pending".

That is actually already all there is in Germany. The German tax authorities lose around 18 billion euros a year by using tax loopholes. According to a calculation by the universities of Berkeley and Copenhagen, the majority of this money flows into Luxembourg, where many companies have concluded advantageous tax deals to reduce their taxes. If one applies the standards of non-governmental organizations such as the Tax Justice Network, a number of corporations in this country are likely to find themselves in need of argument.

This was announced by the ministry upon request.

The situation is similar in Thuringia. The Ministry of Finance stated that 'the fulfillment of tax obligations is taken into account in the approval procedure for guarantees and warranties issued by the Free State of Thuringia'. The Ministry of Economics in Mecklenburg-Western Pomerania explained that applicants for guarantees had required to confirm "that no criminal tax proceedings are pending".

That is actually already all there is in Germany. The German tax authorities lose around 18 billion euros a year by using tax loopholes. According to a calculation by the universities of Berkeley and Copenhagen, the majority of this money flows into Luxembourg, where many companies have concluded advantageous tax deals to reduce their taxes. If one applies the standards of non-governmental organizations such as the Tax Justice Network, a number of corporations in this country are likely to find themselves in need of argument. The Ministry of Economics in Mecklenburg-Western Pomerania explained that applicants for guarantees had required to confirm "that no criminal tax proceedings are pending".

That is actually already all there is in Germany. The German tax authorities lose around 18 billion euros a year by using tax loopholes. According to a calculation by the universities of Berkeley and Copenhagen, the majority of this money flows into Luxembourg, where many companies have concluded advantageous tax deals to reduce their taxes. If one applies the standards of non-governmental organisations such as the Tax Justice Network, a number of corporations in this country are likely to find themselves in need of argument.


The Tax Justice Network's ranking of the most non-transparent tax havens includes countries such as the USA, Luxembourg, Switzerland, Hong Kong and the Netherlands. And many large German companies have a subsidiary in at least one of these countries. Hardly anyone is currently demanding that such companies be excluded from state aid at the price of bankruptcies and unemployment.

"We should see this as a way to fix a broken system."

Alex Cobham, CEO of the Tax Justice Network, suggests a middle course: State aid, indeed, for companies operating in tax havens. But on one condition: the immediate publication of how much tax is paid at each individual company location. Coincided with the promise to close down all subsidiaries, which is merely intended to reduce the tax burden. "We should see this as an opportunity to repair a broken system," says Cobham.

To do so, those who decide on aid applications would first have to know what some corporations are up to. This is a problem, because tax secrecy could be a barrier to this. The Ministry of Finance in Brandenburg, for example, says that the tax authorities are not allowed to give the state-owned investment bank any information about how companies behave. Therefore, shifting profits abroad could not play a role in the granting of state aid. And the presumption of innocence applies to ongoing criminal tax proceedings.

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This in turn is also the weak point in the rigid attitude of the Ministry of Economic Affairs in NRW, which does not want to grant state guarantees in current investigations. After all, one of the core elements in a constitutional state is that alleged wrongdoers must not be prejudged. There are still many questions unanswered, also in Denmark. The country in the north bases its corona aid on the EU's black list, which currently includes only twelve tax havens: The Cayman Islands, American Samoa, Fiji, Guam, Oman, Palau, Panama, Samoa, the Seychelles, Trinidad and Tobago, the American Virgin Islands and Vanuatu.

However, the most important tax havens - above all those in Europe - are not on the EU's blacklist. It is also unclear what criteria the Danish authorities intend to apply: Is one subsidiary in one of the tax havens mentioned sufficient to disqualify an entire group for state aid?

Thomas Eigenthaler, the head of the German Tax Union, rebukes the basic approach in Germany: "Corona aid should be provided quickly and unbureaucratically, which means at the same time: you don't look as closely as you should". If companies have been moving money to tax havens for years and now want to claim state aid, then for him this is one thing above all: "a moral problem".