The European Union announced its plans to launch a tax avoidance probe into prominent furniture retailer Ikea late last year. The move is part of Brussel’s aggressive crackdown on corporate tax avoidance throughout Europe.
Ikea, a Swedish company, has one division based in the Netherlands. The EU alleges that this division was given unfair tax breaks by the Dutch government. The EU’s probe into Ikea centers specifically on two Dutch tax rulings that allowed Inter Ikea – the owner of the company and its franchise rights – to dramatically reduce its tax responsibilities by using what are known as inter-company transactions.
The EU commission argues that the relationship between Inter Ikea and Ikea Group has allowed the company to reduce its overall tax bill in the EU. For example, the Ikea Group reportedly paid Inter Ikea roughly 3 percent of its annual revenues in order to use Ikea’s trademarks and concept. And between 2006 and 2011, Inter Ikea seemingly paid a big chunk of its revenue to a Luxembourg subsidiary that owned some of Ikea’s intellectual property rights as an annual license fee, which was not taxed. Ikea’s founder, Ingvar Kamprad, reportedly set the company up in this manner – with Inter Ikea looking after the brand’s concept and Ikea Group functioning as the main retailer – to circumvent a high tax regime in Sweden.
The EU alleges that Ikea has avoided over $1 billion in tax between 2009 and 2014, which it maintains is unacceptable.
“All companies, big or small, multinational or not, should pay their fair share of tax. Member states cannot let selected companies pay less tax by allowing them to artificially shift their profits elsewhere,” Margrethe Vestager, EU competition commissioner, told the media. “We will now carefully investigate the Netherlands’ tax treatment of Inter Ikea.”
However, Ikea maintains that it has not done anything wrong.
“Inter Ikea Group including its subsidiary Inter Ikea Systems BV is committed to paying taxes in accordance with laws and regulations wherever we operate. The way we have been taxed by national authorities, has in our view been in accordance with EU rules. It is good if the investigation can bring clarity and confirm that,” the company said in its formal statement on the matter. “A state aid investigation is a matter between the European Commission and concerned member states. We study the opening decision and we cooperate and respond to any questions the Dutch authorities or the European Commission might have.”
It’s still too early to tell how this case might evolve. But it is clear that evasion is becoming an increasingly important item on the EU agenda, with a number of major companies in addition to Ikea, including Amazon and Apple, facing accusations of tax avoidance.