Danes may face tax rise if ECJ case goes ahead

Date: 11/04/1996

By Ole Ryborg

COPENHAGEN could be forced to reimburse Danish companies to the tune of up to 7.5 billion ecu if the European Commission carries out its threat to take the government to the European Court of Justice in a battle over labour taxes.

Reports in the Danish media in recent weeks have suggested that defeat for Copenhagen in the ECJ could, in the worst-case scenario, force the government to increase income tax by 6-7&percent; to fund the pay-outs.

The case involves what is known as 'ambi' (arbejdsmarkedsbidrag), a form of labour market contribution that the Danish government forced firms to pay in the late Eighties and which the Court declared to be in breach of EU law in a 1988 ruling.

By the time the ECJ delivered its judgement, Danish companies had handed over a total of 7.5 billion ecu to the state in ambi payments.

In the wake of the ruling, a large number of firms called on the government to repay their ambi contributions. But despite receiving thousands of demands, Copenhagen has so far only paid out a total of around 9.6 million ecu.

Since the ambi was declared illegal, the Danish parliament has adopted a law for the reimbursement of contributions. But that law, combined with the way it has been administered, has made it extremely hard for companies to get their money back.

Several have complained to Internal Market Commissioner Mario Monti. He believes that several of the complainants have a good case, and won the backing of the full Commission late last year to start infringement procedures against the Danish government. An opening letter - the first step of a court case - has already been drafted and only requires the Italian Commissioner's signature.

The Commission claims that Denmark's system for handling demands for repayment does not conform with EU practice.

Copenhagen's insists that, before they are reimbursed, firms must prove they did not pass on the cost of their ambi contributions to consumers by raising prices. The Commission says this is contrary to EU practice as it puts the burden of proof on the companies.

The Danish Ministry of Justice has advised the government to do what it can to avoid a court case, because it is widely believed that Denmark would lose if it went to court.

It was for this reason that high-level Danish diplomats recently flew to Brussels to discuss the possibility of changing the present administration of the Danish law on repayment. Sources say that the talks were inconclusive and another meeting between the Danish Tax Minister Carsten Koch and Monti is likely.

The Commissioner seems prepared to find a negotiated solution. He has not yet signed the letter which would launch a legal battle, over three months after being given the go-ahead to do so.