Danisco fears effects of proposed corporate tax

By Anthony Fletcher

- Last updated on GMT

Related tags Danisco European union Tax

Danisco believes that a bill to change the Danish Corporation Tax
Act would significantly affect the company's expansion strategy.

"The bill dramatically changes the assumptions on which Danisco has based its expansion in the ingredients divisions," said CEO Tom Knutzen.

"In our opinion the bill should be adjusted to avoid such a sudden and radical effect on companies that, like Danisco, have an objective of globalisation from a Danish platform."

Due largely to changes to the EU sugar regime, Danisco, along with many other European suppliers, have looked to become global suppliers of value-added ingredients.

As a result, Danisco's ingredients business, which is headquartered in Denmark and employs some 1,800 people in Denmark out of a total staff of around 8,100 people, has been a focus of growth.

Expansion has been achieved through acquisitions of foreign subsidiaries, which have subsequently been integrated into a global functional organisation.

The local managements are responsible for optimising operations, whilst financial control is managed from the group's head office in Copenhagen.

In consequence, the expansion has mainly been financed by raising debt in the parent company, Danisco.

The firm believes that the proposed change to the corporate tax would affect this business model, and suggest an adjustment should be made to lessen the impact on companies with global aspirations.

It argues that this would be feasible if it were made possible to carry forward the part of the net interest expenses that under the bill would be reduced in the accounting year for deduction in subsequent years by including it in the calculation of deductible interest expenses for these years.

"To the best of our knowledge, this is also expected to be the case in other EU countries currently working on the consequences of the Cadbury Schweppes ruling," said the firm in a statement.

"This would have a regulating effect by providing an incentive to increase equity in Denmark and as such the tax base."

Global companies such as Danisco use financial instruments to manage their financial risks.

Under the Danish Gains on Securities and Foreign Currency Act such financial instruments must be recorded at market value at the financial year-end.

Fluctuations may cause a loss in one year and a gain in the next but an accumulated result of DKK 0 over the life of the instrument.

In such cases the bill may imply non-deductibility in one year and taxation in the next, resulting in tax payments having to be made even though no profit has been realised.

But Danisco argues that a carry-forward system, as proposed above, would compensate for this unreasonableness and help upholding group functions in Denmark.

"Carry-forwards should be implemented to ensure that businesses which, like Danisco, work with globalisation from a Danish platform are not unreasonably severely hit or forced to move their finance departments abroad," said Knutzen.

"Moreover, this would give other Danish companies, including foreign-owned companies, an incentive to increase their earnings base in Denmark."

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