Article by Tom Gillesberg in the German newspaper Neue Solidarität Nr. 6, 7. Februar 2007.

Denmark defends itself against capital funds

Also on another key front is a necessary change in Denmark ongoing. In the summer of 2005 the Danish Parliament created a very liberal law for hedge funds. The Schiller Institute in an open later to the government warned them against the dangers of the hedge funds both in looting the economy and in bringing the financial system down through their geared capital and derivatives trade. Now the Danish government has realized that they have to act. On January 26 the government announced it would present emergency legislation to prevent capital funds from “serving themselves” in grabbing company taxes that belong to the Danish state.

The capital funds have been buying up Danish companies, like the telecommunication giant TDC, with borrowed money. As soon as they got control of the company they would empty the accounts (and pull the money out of Denmark ) and load it up with debt based on the loans they took to buy the company in the first place. The company taxes the company normally would pay would then disappear because the interest payments on the debt could be deducted from the tax bill. In addition, a recent EU decision allows companies to move their profits to daughter companies in other countries so they wouldn’t pay taxes in Denmark . Denmark stands to loose a yearly tax income of EU 2 billion.

The proposed government intervention has the intention of making Danish company takeovers less attractive for the capital funds. Companies will no longer be able to deduct interest rate expenses over 10 million crowns (EU 1,15 million), it will be illegal to offer managers and board members special bonuses for allowing a capital take over a company (the director of TDC Henning Dyremose got a “stay on bonus” of close to EU 9 million for helping the capital funds buying TDC), long term capital investments can’t be written off right away. Among other things the company tax will be lowered from 28 to 22 percent and the tax on stock profits increased to compensate for the intervention.

This lowering of the company tax however is being criticized for being an unnecessary handout to company owners and the financial sector. The trading day on the stock markets bank and insurance stocks rose several percent on the expected extra profit. The Social Democratic political opposition voiced their intension to increase company taxation again if they get in power.

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