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Brussels launches tax investigation into Ikea

Swedish flat-pack retailer in spotlight over complex Dutch tax scheme

The EU’s competition commissioner, will announce an official probe into Ikea’s Dutch tax arrangements. Photograph: Grigoris Siamidis/Reuters

Rochelle Toplensky in Brussels
Mon Dec 18 2017 - 07:03

Brussels is investigating Ikea’s tax arrangements, as the EU widens the net in its four-year crackdown on aggressive corporate tax avoidance.

The EU competition regulator is investigating two Dutch tax rulings that enabled Inter Ikea, owner of the flat-pack retail brand and franchise rights, to significantly cut its tax bills since 2006 using inter-company transactions that officials worry may not reflect economic reality.

Margrethe Vestager, EU competition commissioner 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.”

Inter Ikea said in a statement: “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.

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"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."

The investigation is into the flat-pack furniture retailer’s Dutch tax arrangements, which have allegedly helped Ikea avoid nearly € 1bn in EU taxes from 2009 to 2014, according to a report published in February 2016 by the Greens in the European Parliament.

The Swedish retailer created two separate corporate groups within a web of companies in the Netherlands, Luxembourg and Liechtenstein, through which the group moved money and profits to take advantage of special tax schemes, the report said.

EU competition officials would need to conduct an investigation to determine if the Dutch deal broke the bloc’s rules before they could estimate any tax savings from the structure.

Since 2013, the European Commission has looked at more than a thousand tax deals between member states and multinational companies. In the five investigations concluded to date, officials have ordered four member states to recover billions of euros in total from nearly 40 companies including Apple, Starbucks, Fiat and Amazon.

Ms Vestager last month said most deals did not give “special benefits” but a few “hand out a preferred tax treatment to selected companies”.

“Our work isn’t over yet...we will open investigations whenever there are indications that state aid has been granted,” she added.

The investigation into Ikea would be Ms Vestager’s most recent state-aid probe into the structures that allow some multinational companies to cut their taxes in a way that domestic and smaller companies cannot, which the commission deems an illegal benefit, or so-called state-aid.

Information is limited as Ikea is not a public company and, like most multinational groups, it is formed of a large number of subsidiary companies in numerous jurisdictions.

Ikea Group, the retailer, paid € 825m in tax in its financial year to the end of August on pre-tax profits of € 3.31bn. Its sister company Inter Ikea, owner of the brand and concept, paid € 241m on pre-tax earnings of € 1.15bn.

In August 2016 Ms Vestager ordered Ireland to recover a record € 13bn in back taxes from Apple, for the years 2003 to 2014, in a landmark decision that stoked transatlantic tensions.

The Danish commissioner has also ruled against Starbucks’ arrangement in the Netherlands and Luxembourg’s deals with Fiat and Amazon.

Separately, Belgium was required to recover about € 700m in tax from about 35 companies that benefited from a generous scheme. All countries and most companies have appealed against the EU’s rulings.

The EU is also conducting investigations into McDonald’s, the fast-food chain; Engie, the French utility; and a UK tax scheme for foreign-controlled corporations. McDonald’s has denied wrongdoing. Engie, which is 33 per cent owned by the French state, said it was co-operating with the probe.

The investigations are part of a wider European effort to stop tax avoidance. In addition to the state-aid investigations, the bloc changed its rules to require more transparent reporting from companies, closed some tax loopholes, published a tax haven blacklist and proposed EU-wide comprehensive tax reform. Some member states have also proposed a special tax on digital companies until the comprehensive reform is in place.

Europe is also part of more global efforts led by the Organisation for Economic Co-operation and Development to stop companies artificially shifting profits between jurisdictions to avoid tax.

The US government has also proposed tax reform that cuts the corporate tax rate by nearly 15 per cent, in an attempt to entice US-based multinational companies to move their profits back home.

Despite the efforts to stop aggressive tax avoidance, big US companies hold about $1.4tn in cash offshore, according to Moody’s.

Ikea and the commission declined to comment. - Copyright The Financial Times Limited 2017

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