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European Union regulators open investigation into Ikea's Dutch tax deals

20 December 2017, 12:55 | Sammy Green

European Commissioner for Competition Margrethe Vestager | Michael Reynolds EPA

European Commissioner for Competition Margrethe Vestager | Michael Reynolds  EPA

"Member States can not let selected companies pay less tax by allowing them to artificially shift their profits elsewhere", Commissioner Margrethe Vestager in charge of competition policy said.

Vestager has already made resounding decisions against giants like Apple, Starbucks, Fiat, and Amazon, is also investigating McDonald's fast-food giant and French energy company Engie.

The European Commission said it would centre on concerns that two Dutch tax rulings may have allowed part of the group to pay less tax since 2006 - giving the company an unfair advantage over competitors and breaching state aid rules in the process. 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. That will involve an assessment of Inter Ikea Systems' contribution to the value of the franchise business and the level of interest deducted from Inter Ikea Systems' tax base in the Netherlands. The money has allegedly been illegally shifted to Luxembourg and Liechtenstein, where IKEA pays less or no tax.

It will also consider whether the price Systems paid for the IP rights and the interest paid for the intercompany loan, endorsed in the 2011 tax ruling, "reflect economic reality".

Competition commissioner Margrethe Vestager said in a statement: "All companies, big or small, multinational or not, should pay their fair share of tax".

A probe into Ikea, one of Europe's best-known brands, may ease criticism Vestager has received for focusing on how US companies reduce taxes.

The 2006 ruling endorsed a tax arrangement that IKEA's core company used to shift "a significant part" of its revenues to a special tax scheme in Luxembourg that was exempt from corporation tax. However, the Swedish company claims that several points of the report are mistaken, but this will not stop the European Commission from clarifying whether Ikea may have received illegal state aid in the Netherlands. It also endorsed the interest to be paid under loan to the parent company and the deduction of these interest payments from Systems' taxable profits in the Netherlands.

In April, the Commission ordered Amazon to pay €250m (£221m) in back taxes to the Luxembourg government after ruling that a 2003 tax deal amounted to illegal state aid. In particular, it will assess if the level of the annual license fee reflects Inter IKEA Systems' contribution to the franchise business.

The news came after leaked documents showed that Apple had chosen to move a subsidiary from Ireland to Jersey in order to continue avoiding billions in taxes, after an European Union crackdown in 2013.

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.

Ikea said it complies with all tax rules, and would cooperate with regulators.

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