Ikea's Taxes to be Investigated by European Commission

Javier Stokes
December 20, 2017

Ms Vestager ruled in August a year ago that Ireland had granted the company illegal state aid in the form of generous tax benefits, which allowed the California-based company to pay nearly no tax on a significant proportion of its global sales.

The EU said its investigation into the Swedish retailer of flat-packed furniture focuses on the Dutch government's treatment of Inter IKEA Systems, one of the two groups operating the IKEA business. In return, the IKEA shops are entitled to use inter alia the IKEA trademark, and receive know-how to operate and exploit the IKEA franchise concept. The EU is investigating if this mechanism is a device to enable Ikea to avoid paying tax on part of its profits.

"The 2006 tax ruling endorsed a method to calculate an annual licence fee to be paid by Inter IKEA Systems in the Netherlands to another company of the Inter IKEA group called I.I. Holding, based in Luxembourg".

As a result of the interest payments, a significant part of Inter IKEA Systems' franchise profits after 2011 was shifted to its parent in Liechtenstein.

They'll also review a 2011 tax ruling on the reorganization of the company's tax affairs, looking at whether the price Inter Ikea Systems agreed on to buy intellectual property rights and the interest paid on an intercompany loan reflect economic reality.

European Commission opens "in-depth" investigation into IKEA's tax affairs in Europe. Although Ikea was founded in Sweden in 1943, the parent company is based in the Netherlands.

According to Business Insider, EC declared the tax ruling illegal in 2011 and Ikea restructured as a new tax agreement was brought in.

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"Member states can not let selected companies pay less tax by allowing them to artificially shift their profits elsewhere", Margrethe Vestager, European commissioner for competition, said.

The Commission is investigating Dutch tax rulings issued in 2006 and 2011 that may have allowed the IKEA subsidiary, Inter IKEA, to reduce taxable profits in the Netherlands, giving it an unfair competitive advantage over other companies in breach of EU State aid rules.

Inter IKEA's subsidiary, Inter IKEA Systems, recognizes significant income in the Netherlands.

Apple was slapped by a huge tax bill in 2016, when the European Union ordered Ireland to recover up to €13 billion ($15 billion) from the tech company. "This is because I.I. Holding was part of a special tax scheme, as a result of which it was exempt from corporate taxation in Luxembourg". Regulators will assess "if the level of the annual license fee reflects" the company's contribution to the franchise business.

Under EU law, member nations are not allowed to give selective benefits of taxes to multinational groups that other firms do not have access to.

The commission said it believed the tax treatment given to IKEA wasn't available to other companies in the Netherlands.

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