Denmark increases corporate transparency

March 8th, 2013

In late 2012 the Danish parliament decided to publish information about the amount of tax paid by all companies operating in Denmark. This move has increased the level of transparency considerably and has also spurred a debate on corporate tax payments in Denmark. According to the Danish Minister of Taxation, the so-called Open Tax lists are to increase transparency and should not pose a problem for the companies, unless they have something to hide.

68 percent of the companies operating in Denmark paid no corporate tax in 2011. This figure has attracted a lot of attention, but is probably an overestimation of the problem regarding tax evasion with which it is frequently linked. In reality it is difficult to estimate just how great the problem of tax evasion in Denmark is. According to a study made by The Economic Council (an independent economic advisory body established by law in 1962) a few years back, the loss of tax revenue, due to multinational companies transferring their profits abroad, amounts to as much as 14 billion kroner every year. In comparison, the total corporate tax revenues amounted to 40 billion kroner in 2011. It is also well known that large multinational companies such as for example Nestlé and Q8 have not paid any corporate tax in Denmark during the last 15 years.

The Confederation of Danish Industry (DI) is, however, concerned that the open tax lists might reinforce myths about the companies’ total contribution to the Treasury, which according to DI amounted to 450 billion kroner in 2011 (including the employees’ income tax, green taxes etc.). In a response, The Danish Minister of Taxation stated, that in his opinion, the increased level of transparency about companies’ tax payments both will be of benefit to society as such, and for the many companies that comply with and follow the Danish tax law, and therefore in some cases are competing on unequal terms.

The open tax lists

All companies except sole proprietorships are included in the open tax lists, which contain information about taxable income and amount of tax paid. The database does not, however, contain information on company revenue.

For companies subject to joint taxation with other companies, it is only possible to see the overall amount of taxes paid by the parent company – not the affiliated subsidiaries. It is, however, fairly easy to see which companies are subject to joint taxation. For example there is a direct link from Cadbury Stimorol Danmark ApS (subsidiary) to Kraft Foods Danmark ApS (parent).

Even though the parent-subsidiary relationship is quite transparent, the combination of lack of information on subsidiary income and total revenue makes it difficult to assess whether or not the amount of corporate tax paid by the parent, seems to comply with the spirit of the Danish tax law.  Also, the open tax lists only contain tax information for the past year. It is therefore difficult to assess whether or not companies make actual contributions to the Danish Treasury in the long run. This part of the law might also lead to unjustified criticism of some companies, since there may be perfectly valid reasons not to pay corporate tax every year.

Despite the above-mentioned problems, the open tax lists has increased the level of transparency in relation to corporate taxation in Denmark. There is still room for improvement, but the publication of the open tax lists has helped put the issue on the public agenda.  The increased attention may largely be attributed to the ready availability of the tax information, since many Danes – and not only journalists and the like – have used the database.

Written by Morten Hertz Kristensen

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