With some bailed out companies continuing to pay dividends, the focus should shift to making big corporations contribute to the cost of recovery.
Remember the ‘world after the pandemic’? The Covid-19 crisis has caused mourning in hundreds of thousands of families and brought the world’s economies to their knees. But by forcing more than half of humanity to stop, it has also forced us to think, to dream of a more egalitarian, greener world. In that world, we would recognise the importance of quality public services, having seen health workers fighting heroically against the virus and teachers trying to keep in contact with their students, despite the lockdown and lack of resources.
Through timely and otherwise-welcome operations of ‘solidarity’—donating masks and gel or opening up their premises—big brands have not hesitated to advertise on the back of the pandemic. But all over the world, many companies are paying out billions in dividends, even after benefiting from state handouts.
In France, for example, half the CAC 40 index—representing the 40 top companies by market capitalisation—still decided to pay out between €35 and €41 billion in dividends, despite receiving state aid from the short-time-work scheme to compensate workers for reduced hours due to the pandemic. In Germany, the list is also extensive, with carmakers featuring prominently—Volkswagen has placed around 80,000 employees on short-time contracts, yet still plans to pay around €3.3 billion in dividends. And in the UK, the world’s largest chemicals company, BASF, which received £1 billion in support funding, voted last month to pay out more than three times that amount in dividends to shareholders.
Champions of indecency
The soaring dividends are feeding the billionaires, though the European ones are not the champions of indecency. In the United States, the assets of 600 billionaires grew by $434 billion, or 15 per cent, during the first two months of lockdown. The fortunes of Jeff Bezos and Mark Zuckerberg alone—founder bosses of Amazon and Facebook respectively—increased in sum by nearly $60 billion. This is no coincidence, as digital companies have benefited most from the pandemic—since they do not require any physical interaction with the public—often at the expense of small and medium-sized distribution firms.
Ironically, these multinational digital companies are also the champions of tax avoidance. The ‘GAFA’—Google, Apple, Facebook and Amazon—are not the only ones who do not pay taxes according to their activities. But, because they are dematerialised, they are able to exploit the loopholes in the international tax system more easily.
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By manipulating transactions between their subsidiaries, they are reporting record profits in tax havens and very low ones—if not losses—in countries with higher corporate taxes, even though they are actually operating extensively in the latter. For example, Amazon, in spite of doubling its profits in the US in 2018, didn’t pay a single dollar in taxes there, for the second year in a row.
This is why, while keeping in mind that the US administration has just announced that it no longer wants to take part in negotiations to overhaul the international tax system, it is urgent for countries to introduce, regionally or unilaterally, at least temporary taxes on the digital giants. This is one of five main recommendations proffered last month by the Independent Commission for the Reform of International Corporate Taxation (ICRICT)—of which I am a member alongside economists such as Joseph Stiglitz, Thomas Piketty and Gabriel Zucman—to enable states to cope with the explosion in spending caused by the pandemic.
When the economies of the European Union are set to shrink by 7.4 per cent, the worst recession in the bloc’s history—the International Monetary Fund is expecting a global recession of 4.9 per cent—austerity is no longer appropriate. We need to invest in health, schools and infrastructure, but also in supporting businesses, especially the smallest ones. But even if some governments pretend to ignore the fact that we shall have to foot the bill in the end, we must, from now on, turn to those who benefit from the system without contributing to it.
In addition to digital companies, governments must also apply a higher corporate tax to firms in monopoly or oligopoly situations—especially those profiting from the crisis, such as in the pharmaceutical sector. Above all, we must not succumb to the siren calls for tax cuts, for which big companies are already campaigning, claiming that they are ‘necessary for reconstruction’.
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We already know that, in normal times, it is not taxation that pushes a company to invest in a country: it is more about the quality of infrastructure, the workforce, market access or political stability. And while expansion projects are constrained by uncertainty and corporate overcapacity, tax cuts will not stimulate private investment anyway. But they would certainly deprive governments of valuable resources.
To protect and increase these resources, we must finally make a major push for transparency, to uncover the amounts hidden in tax havens. This concerns those with large fortunes, of course, who should finally pay their fair share of taxes to fund the consequences of this crisis—some countries, such as Argentina, are considering this—but above all the multinationals.
They must declare where and how much they earn on a country-by-country basis. This would allow governments to tax them at a minimum rate—at least 25 per cent, according to ICRICT.
In concrete terms, if a French multinational, for example, decided to declare its profits in the Cayman Islands—or, even closer, in the Netherlands or Luxembourg—to take advantage of a very low tax rate, France would be able to recover the difference. This measure would quickly make the raison d’être of tax havens disappear.
And, for once, governments are in a good position to impose this transparency. All they have to do is announce, as France, Denmark and Italy, among others, have already done, that companies with headquarters or subsidiaries in tax havens—without carrying out any real activity there—will not be entitled to any public aid to deal with the Covid-19 crisis.
There is no time to lose. The 2008 financial crisis already made us dream of a fairer world—with results we all know about. Losing this new opportunity, at a time when social, human and climatic crises are multiplying throughout the world, would be unforgivable.