European Regulators Open Investigation Into Ikea's Taxes

The furniture retailer’s Dutch tax arrangements are thought to be the subject of the inquiry

"Member States cannot allow some companies to pay fewer taxes by artificially relocating profits elsewhere can".

The commission has previously investigated tax avoidance structures of multinational companies, including Apple, Starbucks and Amazon.

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. Inter-Ikea Holding holds the trademark rights to Ikea and, like the Ikea Group owns a foundation.

European Commission's investigation is based to this scheme and to evidence that a Dutch subsidiary of IKEA has paid intellectual property royalties to a subsidiary in Luxembourg.

Then in 2011, after the Luxembourg tax scheme was deemed illegal, Inter Ikea arranged a second tax ruling with the Netherlands.

The annual licence fee paid by Inter IKEA Systems to I.I. Holding, as endorsed by the 2006 tax ruling, made up a significant part of Inter IKEA Systems' revenue.

"The way we have been taxed by national authorities, has in our view been in accordance with European Union rules", said Josefin Thorell, a spokeswoman for Inter IKEA Group. The Dutch subsidiary financed the acquisition by taking out a loan from its Liechtenstein parent.

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The Commission's investigation concerns the tax treatment of Inter IKEA Systems in the Netherlands since 2006.

EU Competition Commissioner Margrethe Vestager said, "All companies, big or small, multinational or not, should pay their fair share of tax". 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.

The regulator alleges that Ikea, which operates multiple companies across the Netherlands, Luxembourg and Liechtenstein, may have shifted profits between the countries in order to reduce its tax obligations. In August 2016, she ordered Ireland to recoup more than €13 billion in back taxes from Apple, while this October she told Luxembourg to collect around €250 million against Amazon.

Recent EU investigations into illegal state aid have resulted in some major penalties. Following global recognition that the worldwide tax system needed to be reformed to prevent BEPS, the G20 asked the OECD to recommend possible solutions.

Under EU state aid rules, member states are prohibited from granting corporations tax benefits that are not available to all companies within the bloc.

The Commission will also assess whether the price Inter IKEA Systems agreed for the acquisition of the intellectual property rights and consequently the interest paid for the intercompany loan, endorsed in the 2011 tax ruling, reflect economic reality. "Ikea has been using a series of tax loopholes for years to avoid paying taxes", said German Green MEP Sven Giegold.

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