Ikea may have underpaid taxes by €1bn in EU, report claims

Company with retail reach in over 40 countries enjoys annual sales above €33bn

A report commissioned by the Green/EFA group in the European Parliament into the tax affairs of Ikea found that it has been paying itself royalties to reduce its overall taxation bill.

A report commissioned by the Green/EFA group in the European Parliament into the tax affairs of Ikea found that it has been paying itself royalties to reduce its overall taxation bill.

 

EU countries may have lost out on more than €1 billion in tax revenues between 2009 and 2014 due to aggressive tax strategies by furniture giant Ikea, a new report has claimed.

A report commissioned by the Green/EFA group in the European Parliament into the tax affairs of the private company found that Ikea has been paying itself royalties to reduce its overall taxation bill. From 1991 to 2014 the Inter Ikea group allegedly used a Dutch company which allowed the company to avoid paying tax on up to 84 per cent of the €14.3 billion in royalty income it received from Ikea stores around the world, the report says.

Family business

The family-run business was founded in Smaland, Sweden in 1943 by Ingvar Kamprad. It opened its first retail store in 1958 and has since expanded its retail reach to more than 40 countries. Last year its annual sales topped €33.8 billion. Around three-quarters of its revenues come from Europe.

The report claims that the division of Ikea into two distinct corporate groups based in Liechtenstein and the Netherlands in the early 1980s has masked “large scale profit-shifting” by the company. It says that every Ikea store pays a 3 per cent franchise fee to the Inter Ikea Group via a Dutch-based subsidiary, Ikea Systems BV. Much of this royalty income is in turn shifted to Ikea’s Lichtenstein-based entity.

In total Ikea franchisees paid €14.3 billion in royalties to the Inter Ikea Group between 1991 and 2014, according to the report, benefitting from the Dutch system whereby no withholding tax is paid on royalty and payments sent abroad.

Ikea said it had not seen the report and could not comment on its contents. However, in a statement it said: “The IKEA Group pays taxes in accordance with laws and regulations, wherever we are present as retailer, manufacturer or in any other role. We have a strong commitment to manage our operations in a responsible way and to contribute to the societies where we operate.”

Corporate tax

The Ikea Group paid €822 million in corporate tax last year on a global basis, the statement said, equating to an effective corporate income tax rate of approximately 19 per cent.

The Spokeswoman for the Green group in the European Parliament on tax, Molly Scott Cato, called on the European Commission to investigate Ikea’s tax activities. “Ikea has deliberately created this multi-layer company model to enable it shift hundreds of millions of euro in profits through several EU tax havens and to make sure this money remains untaxed when ending up in Liechtenstein,” she said, adding that Ikea was just the latest example of a major multinational going to great lengths to avoid its tax responsibility.

The focus on the tax affairs of Ikea comes as the European Union intensifies its scrutiny of the corporate tax practices of multinational companies.

It is also likely to prove uncomfortable reading for the Dutch government which currently holds the six month rotating presidency of the European Union.

Google payment

The issue of multinational tax avoidance has come under renewed scrutiny in recent weeks particularly in Britain following Google’s payment of a £130 million settlement with the British tax authorities.

The European Commission is due to introduce a new proposal requiring multinational companies to publish country-specific breakdowns of their profits and taxes in April. Similar rules already apply to the banking and extractive sector. Unlike the country-by-country transparency regime proposed by the OECD, the EU proposal is likely to go further, potentially forcing companies to disclose the relevant information publicly rather than to tax authorities.