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Now the big question that regulators and politicians avoid like the plague is this: after private-sector solutions have been exhausted, and it is agreed a bailout is necessary, how will governments allocate the cost of those bailouts? During the 2007-09 crisis most of the cross-border bailouts have been handled on an ad hoc basis. When the Dutch-Belgian bank giant Fortis needed a bailout, the governments of Belgium, Netherlands, and Luxembourg negotiated a division of costs roughly proportional to the size of the business in each country.
I will now make a simple assertion that, to my knowledge, has not been suggested anywhere else: the country that pays for the bailout in bad times should collect taxes from the bank in good times. I'm confident I could devise clever economic rationales for this claim, but for the time being let's just appeal to common sense and to the idea that once the smoke clears this is what the political system will demand.
So, both the universal and territorial approach spell trouble for the future of tax havens as sanctuaries for banks who like to shelter their profits from tax. If the universal approach is taken, why should home countries bear the brunt of responsibility and bailout costs for the advantage of tax havens that help reduce the fiscal resources of the home country and whose light regulatory regimes contribute to financial instability? If the territorial approach is taken, why should countries where the real business activities of banks are performed tolerate anything but the simplest structures? Simplicity means offshore subsidiaries will be the first to go.
View TaxAnalysts' Martin Sullivan's opinion in its entirety on TAX.com.