Danish Enterprises Demand Tax Deductions, Threaten to Depart

Copenhagen is pursuing a misguided tax policy, which may lead to devastating consequences for the Danish economy and force industrial heavyweights to move production abroad, undermining employment in Denmark, several captains of Danish industry wrote in an open letter to the government.

According to the open letter to Tax Minister Karsten Lauritzen and Business and Growth Minister Troels Lund Poulsen, signed by the CEOs of DSV, ISS, Danfoss, Carlsberg, Maersk and other major companies which together employ tens of thousands of Danes, the country's recent move to limit certain tax deductions may stifle the development of local enterprise.

They believe the government's new tax plan on mergers and acquisitions means higher expenses and more red tape for large companies that regularly rely on M&A activity.

"This undermines historical practices. Besides, Denmark's Tax Service introduced it without a proper legislative amendment. This creates uncertainty. For me it is also a question of what they wish to remove next time. This creates a competitive disadvantage, because people could choose another country, where there are tax deductions for such operations," Mads Kristensen, tax manager at Facility Services giant ISS, told Danish newspaper Berlinske.

According to the Danish captains of industry, the elimination of M&A tax deductions may lead to a possible mass relocation of Danish jobs, as companies which take on significant costs related to business development and innovation will get a major incentive to move operations abroad, thus undermining the Danish economy.

"Is there any reason why Danish companies should not move their activities to countries where the tax deduction is present?" Kristensen asked rhetorically, suggesting a rapid change in the law that would allow a general tax deduction for labor costs.

Until now, labor costs had been considered to be eligible for a deduction. Today, the 110-year law may be abolished as expenses related to the establishment and expansion of businesses is no longer considered deductible. This triggered harsh criticism from Jens H. Lund, CFO at transport giant DSV.

"We are a company that buys and creates networks to transport more goods and create more services for customers. This also yields more money to the tax coffers. But here they step in and increase the operating costs, which hits us. Growth is the very foundation of our business," Jens H. Lund said.

According to him, the removal of tax deduction rights is a problem in itself, but the disappearance of confidence may be even more disturbing.

"As a company you tend to think ahead, and there is a need for reassurance in order to know what happens to the underlying conditions in years to come," Lund said.

The same arguments were voiced by the consulting engineering group Rambøll, which had earlier engaged in acquisition and now sees problems.

"As a matter of fact, there is nothing to prevent us from locating our personnel elsewhere. We have large operations in the other Nordic countries and the United States, where there are no problems with the deductibility of development," Rambøll's tax manager Henrik Meldgaard said.

This is not the first time Danish tax officials have come under fire. After several years of scandals, which are estimated to have cost Danish taxpayers billions, the Danish Tax Service (Skat) was last week granted 6.8 billion DKK (roughly 1 billion USD) for reorganization, IT updates and the recruitment of 2,000 extra personnel, which stirred criticism.