“We are sending a clear signal to companies that we do not plan any new taxes and duties for businesses,” said Economy Minister Margrethe Vestager.
The rate reform follows UK Chancellor of the Exchequer George Osborne’s model of incremental cuts to the headline rate.
“The reduction will be gradual, with one percentage point shaved off per year from 2014 to 2016. At present, the government and Ministry of Taxation have only presented the plan for growth in headlines,” said Jesper Anker Howes, manager at ACCURA TAX. “Actual individual Bills are expected to be presented in the spring or after the Danish Parliament’s summer vacation.”
While it is unlikely a Bill will be presented until after parliament’s summer break, Anker Howes is confident the cut will take place. The strength of the government line-up at last week’s press conference to announce the Growth Plan is one reason for his optimism.
“Despite the fact the actual Bills are yet to be presented, I am personally confident the corporate tax rate will be reduced,” he said. “The Growth Plan was presented at a large press conference by no less than four ministers from the government, including the Prime Minister.”
Another factor making the rate cut likely is the loss of face Danish Prime Minister Helle Thorning-Schmidt’s government would suffer if it backtracks on the move.
“It would simply be a giant loss of prestige for the government if the reduction in the corporate tax rate is not passed,” said Anker Howes. “The right wing opposition in the Danish parliament also seems to be positive about the idea overall and thereby providing the necessary majority in parliament.”
The official explanation for the suggestion of lowering the corporate tax rate is that the government wishes to improve conditions for Danish companies.
“Personally, I believe this is only a part of the truth,” said Anker Howes. “Another reason could very well be that neighbouring Sweden last year decided to lower its corporate income tax rate from 26.3% down to 22%. The new tax rate applies from January 1 2013. Also, the UK has decided to lower their corporate tax rate to 21% by 2014. So to some extent the government was forced to take action by our neighbours.”
“One should also note that a report released in the beginning of February from Danish Ministry of Foreign Affairs concluded that foreign investments into Denmark have stagnated. According to the report, one of the major reasons for this stagnation is an unstable and, to some extent, an unfavourable tax regime. This could have had some influence on the suggestions in the Growth Plan,” he added.
In terms of further corporate tax reforms in the pipeline, the government is looking at changing the tax regime for the oil and gas extraction industry, but no other changes have been announced other than those in the Growth Plan. However, this doesn’t mean reforms are not on the way. Anker Howes said that based on his experience, it is “very unlikely that we will not see other changes”.
“Last year, tax regulations concerning corporations were changed at least four or five times. The nature of Danish tax law is, unfortunately, ever-changing and sometimes straight-up unstable,” he said.
Given Danish tax-writers’ reputation for being anti-business, the Growth Plan should be welcomed and Anker Howes says the message it sends out to the international investor community is a positive one.
“For many years the Danish Ministry of Taxation and lawmakers have been heavily criticised – and in my opinion with good reason – for being hostile towards the business environment in Denmark, especially against multinational enterprises,” said Anker Howes. “Therefore it is a refreshing and very positive signal to the world that relaxations in the corporate tax area are now being proposed. The signal value of this should not be underestimated.”
