Taxing issues

Earlier this year, the Commission for Taxes, appointed by the Danish Ministry of Taxation, published its proposal for a new Danish tax reform. In response to the proposals, the Danish Venture Capital Association (DVCA) launched a suggestion for a growth package "Vaekstpakken," targeted at the private equity and venture capital industry.

Among the measures suggested is a EUR200m contribution earmarked for a fund-of-funds, similar to the model chosen by Norway and Finland. In the former, Government-backed Argentum received additional funds of NOK 2bn, while in the latter, the Finnish government channelled extra funds through a new fund-of-funds under the management of government-backed Finnish Industry Investment. The fund will invest in venture funds focusing on unlisted growth companies in Finland.

Additionally, the DVCA proposes tax breaks for innovation in venture-backed small- and medium-sized companies (SMEs). "We see them as being at a disadvantage compared with corporate innovation," chairman of the DVCA, Ole Steen Andersen explains. "When a larger corporation invests in internal research and development (R&D), or even R&D in a subsidiary, the corporation is eligible for tax relief. This is not the case for venture-backed SMEs, as these start-ups often don't generate revenue."

Another factor in improving the environment for start-ups is lifting the pressure on personal income tax. This relates not only to investment activity, but also to business development and the importance of attracting a skilled labour force. As the majority of venture activity in Denmark is in the biotechnology/pharmaceuticals and ICT sectors, this is particularly pertinent. These sectors are both capital- and knowledge-intensive industries. "Several analyses have shown that Denmark's most severe problem in the years to come will be to get skilled labour," Andersen states.

In the EVCA and KPMG study on the European tax and legal environments, as reported previously (Nordic unquote" November/December 2008, pages 14 & 15), Denmark was the only Nordic country to score above average. Yet, personal income tax was singled out as the most significant obstacle for investments in the country. "Hence we suggest that the politicians remove the top bracket tax," the DVCA chairman states.

To further encourage and facilitate commercialisation of innovation, the DVCA also suggests extra funds for proof-of-concept. According to the DVCA, these funds would best be distributed through a call for tend, ensuring the most qualified new products and developments are awarded the financial support. More important than financial support, however, is predictability. "The main problem right now concerning PE is to get a stable climate to do investments in. We have seen that different political initiatives have made the future uncertain for PE. It is important to get that uncertainty off the table," Andersen concludes.

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