EU Commission to investigate Ikea tax dealings
European competition Commissioner Margrethe Vestager has announced the opening of an investigation into the tax affairs of Ikea.
Ikea | Photo credit: Press Association
The inquiry focuses on two rulings issued to the company by the Netherlands related to the licence fees paid by its stores in their franchise system and the price of the Ikea brand acquired through a loan.
The European Commission said the in-depth investigation would focus on the Netherlands’ tax treatment of Inter Ikea, one of the two groups operating the Ikea business. The executive said it 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 inquiry comes after a report the Greens/EFA group in Parliament published in February 2016 that highlighted the tax practises of the Swedish company between 2009 and 2014.
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Speaking at a news conference in Brussels on Monday, Vestager said, “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. We will now carefully investigate the Netherlands’ tax treatment of Inter Ikea.”
In the early 1980s, the Ikea business model changed into a franchising model. Since then, it has been the Inter Ikea group that operates the franchise business of Ikea.
A Commission spokesperson explained, “What this means more concretely is that Inter Ikea does not own the Ikea shops. All Ikea shops worldwide pay a franchise fee of three per cent of their turnover to Inter Ikea Systems, a subsidiary of Inter Ikea group in the Netherlands.
“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.
“Inter Ikea Systems in the Netherlands records all revenue from Ikea franchise fees worldwide collected from the IKEA shops.”
The Commission’s investigation concerns the tax treatment of Inter Ikea Systems in the Netherlands since 2006.
The Commission spokesperson said, “Our preliminary inquiries indicate that two tax rulings, granted by the Dutch tax authorities in 2006 and 2011, have significantly reduced Inter IKEA Systems’ taxable profits in the Netherlands.
“The Commission has concerns that the two tax rulings may have given Inter IKEA Systems an unfair advantage compared to other companies subject to the same national taxation rules in the Netherlands. This would breach EU state aid rules.
“The opening of an in-depth investigation gives the Netherlands and interested third parties an opportunity to submit comments. It does not prejudge the outcome of the investigation.”
The opening of the probe was welcomed by German MEP Sven Giegold, tax spokesperson of the Greens/EFA group in Parliament.
Speaking on Monday, he said it showed the EU was ready to “shows its teeth against tax dodging.”
The deputy added, “As many other big companies, Ikea has been using a series of tax loopholes for years to avoid paying taxes. It is the duty of the European Commission to stop these unfair behaviours and make sure that companies pay their taxes where they make their profits.”
However, he said that such investigations should not be limited to the Netherlands; “Obviously, the Netherlands represents the core of Ikea’s tax avoidance system but the EU should also look at Luxembourg and Belgium.
“I expect that in the end Ikea has to pay back state aid to the Dutch state. We are not talking about peanuts in missing tax revenues. It is estimated that Ikea may have shifted €1bn between 2009 and 2014 - revenues which could be used for schools, hospitals or investment in public transports.”
He went on, “Ikea’s tax practises are a theft to society.”
Giegold said the latest EU investigation represents “great recognition” of efforts to end “tax dogging in the European Union.”
He said, “The European Commission’s enforcement arm, acting as the police of EU competition law, is absolutely crucial to ensure fair taxation in the EU, especially when we know that many tax reforms are being blocked by the EU member states.
“We therefore encourage the Commission to look into several other harmful regimes, starting with patent boxes for example.”
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