EU Commission launches investigation against IKEA's suspected tax avoidance

"The Commission has concerns that two Dutch tax rulings may have allowed Inter IKEA to pay less tax and given them an unfair advantage over other companies, in breach of EU State aid rules".

The investigation was prompted by a February 2016 report by Green party members of the European Parliament.

The fee made up a significant part of Inter IKEA Systems' revenue and resulted in the shifting of most of the company's franchise profits to Luxembourg, where they remain untaxed, the European Union said.

"Although the EU Commission has turned its sights on a Swedish group, rather than the USA multinationals which have been its main target, its argument is familiar: profits have not been taxed anywhere, so there must be State Aid involved somewhere", Ian Hyde said.

The European Commission is not so much anxious about different countries in the European Union having different tax policies, in fact considering it is supposed to be one, seamless market, there are a whole range of company tax rates and policies across the EU.

"The Commission has concerns that two [Dutch] tax rulings may have given Inter Ikea Systems an unfair advantage compared to other companies", it said.

EU Competition Commissioner Margrethe Vestager said, "All companies, big or small, multinational or not, should pay their fair share of tax".

Here’s a diagram provided by the EC outlining the two tax arrangements
Here’s a diagram provided by the EC outlining the two tax arrangements

As such, this is a historical element of the case and not part of the investigation, the Commission said.

Last month the Commission launched an investigation into a British tax exemption for multinational companies set up by the then-Conservative-led government in 2013 to attract companies to set up headquarters in Britain.

The EU said the 2006 tax ruling endorsed a method to calculate an annual license fee that Inter IKEA Systems in the Netherlands paid to another IKEA company called I.I. Holding, based in Luxembourg. The Luxembourg unit was part of a special tax scheme, exempting it from corporate taxation there. The report stated that IKEA is said to have built up a network of subsidiaries in the Netherlands, Luxembourg and Liechtenstein.

The EU will investigate whether the tax affairs of Ikea breach rules by the EU related to state aid. It also endorsed the interest to be paid under the intercompany loan to the parent company in Liechtenstein, and the deduction of these interest payments from Inter IKEA Systems' taxable profits in the Netherlands. The commission said it would scrutinize whether those payments reflect economic reality.

The annual licence fee paid by Inter IKEA Systems to I.I. Holding, as endorsed by the 2006 tax ruling, made up a significant part of Inter IKEA Systems' revenue. The EU in 2015 ordered the Dutch government to recover millions of euros from Starbucks allegedly unpaid taxes, a decision the Netherlands is appealing.

I.I. Holding paid no corporate tax in Luxembourg because of Luxembourg tax rules in place at the time.

  • Wendy Palmer