Ikea's tax affairs to be investigated by the EU

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Ikea store outsideImage source, AFP/Getty

The European Commission is to open an in-depth investigation into Ikea's corporate tax structure.

The Commission said Dutch-based Inter Ikea, one of the Swedish giant's two divisions, may have been given unfair tax advantages by the Netherlands.

European Competition Commissioner Margrethe Vestager said all firms "big or small, multinational or not, should pay their fair share of tax".

The EU will look at whether Ikea's tax affairs breach EU rules on state aid.

Under EU law, member states cannot give selective tax benefits to multinational groups that are not available to other firms.

"The Commission has concerns that two [Dutch] tax rulings may have given Inter Ikea Systems an unfair advantage compared to other companies," it said.

The move is the latest crackdown by the EU competition authority on tax deals between EU countries and multi-nationals.

A spokesman for Inter Ikea Group said the way it had been taxed "has in our view been in accordance with EU rules".

"It is good if the investigation can bring clarity and confirm that," he added.

Two tax deals

The Commission's Ikea inquiry is focused on two tax agreements between the Netherlands and Inter Ikea which it alleges "have significantly reduced" the firm's taxable profits in the Netherlands.

Netherlands-based Inter Ikea operates the franchise business of Ikea. It collects royalties from other parts of Ikea and pays little tax on the proceeds.

The Commission says that in 2006, a Dutch tax ruling enabled Inter Ikea to pay a "significant" annual licence fee to another Ikea unit in Luxembourg, thereby shifting revenue to a jurisdiction where it remained untaxed.

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

This ruling focused on a loan deal with an Ikea unit in Liechtenstein, which enabled Inter Ikea to shift "a significant part of its franchise profits" to a low-tax jurisdiction.

A senior Dutch EU official said it would look at the details of the case.

"The Netherlands fully supports the Commission's work," they added.

Richard Murphy, professor of practice in international political economy at City University, said Ikea's tax arrangements were "unusually complicated" and as a result, an EU probe was "inevitable".

"Is their level of tax disproportionate to their overall activity in a country is undoubtedly what [the European Commission] are looking at here," he said.

Analysis by BBC business correspondent Jonty Bloom

Image source, Getty Images

The European Commission is not so much worried about different countries in the European Union having different tax policies, in fact considering it is supposed to be one, seamless market, there are a whole range of company tax rates and policies across the EU.

What it does not like are tax deals that are available for one type of company, huge multi-nationals, but not to everyone else.

Your local High Street furniture store has enough trouble competing with the likes of Ikea, with its massive stores, name recognition, buying power and marketing budget, without Ikea also having access to tax breaks that it could never use.

That is why Ikea is just the latest in a long line of giant companies that the European Competition Commissioner Margrethe Vestager has gone after.

She has already had Amazon, McDonalds and Apple in her sights, and this is big-game hunting; Apple alone was found to have benefited to the tune of £11.5bn in unfair tax breaks.

Image source, Getty Images
Image caption,
The EU's competition chief Margrethe Vestager is worried giant firms are gaining unfair advantages over smaller rivals

The Commission has recently ordered various member states to collect billons of euros' worth of back taxes from Apple, Starbucks, Amazon and Fiat.

The European Commission is worried that giant companies gain an unfair advantage over smaller rivals which have no chance of using similar tax schemes.