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European Regulators Open Investigation Into Ikea’s Taxes Ikea is Focus of European Inquiry Over Possible Skirting of Tax Bills
(about 5 hours later)
European regulators on Monday opened an investigation into the tax structure of the furniture retailer Ikea, the latest inquiry in a crackdown on potential tax evasion by multinational corporations. Ingvar Kamprad, the founder of the global furniture retailer Ikea, is known for buying his clothes at flea markets, driving an old Volvo and flying only economy class. Although he is a billionaire many times over, he revels in his reputation for saving money.
The European Commission, the European Union’s executive arm, said it was concerned that tax rulings in the Netherlands may have allowed Inter Ikea, one of the company’s operating divisions, to pay less tax since 2006, and may have given it “an unfair advantage over other companies,” in breach of European rules on state aid. Now, European regulators are accusing Mr. Kamprad’s company of pushing the concept of thriftiness beyond the limits of the law by maneuvering to reduce its tax bill in the countries where it operates.
“All companies, big or small, multinational or not, should pay their fair share of tax,” Margrethe Vestager, the bloc’s top antitrust official, said in a statement. “Member states cannot let selected companies pay less tax by allowing them to artificially shift their profits elsewhere.” The European Commission, the European Union’s executive arm, said on Monday that it had opened an investigation into Inter Ikea, one of the retail giant’s two main divisions, amid concerns it may have been given unfair tax advantages by the Netherland, where Inter Ikea is based. The inquiry is part of an intensifying campaign by Europeans regulators to crack down on what they view as sweetheart deals between multinational companies and tax-friendly countries that have sought to draw their business.
Ikea, known for its flat-pack furniture, reported revenue of 36.3 billion euros, or about $43 billion, in its 2017 financial year, which ended in August. The announcement adds Ikea to a list of firms targeted by European officials for using sophisticated strategies in Ireland, the Netherlands and other European Union countries to pay few or no taxes on billions of dollars of profits. Other companies facing similar scrutiny include Starbucks and Apple
In a report last year, the European Green Party said that Ikea was able to avoid an estimated €1 billion in taxes from 2009 to 2014 because of its corporate structure. Led by Margrethe Vestager, Europe’s top antitrust regulator, Brussels is also gearing up for an offensive against technology companies with a raft of proposals that are meant to increase the amount of tax paid by behemoths like Facebook and Amazon.
The company’s business model was changed to a franchise structure in the early 1980s, with Inter Ikea operating its franchise business. Inter Ikea, through a Dutch subsidiary, receives franchise fees equal to 3 percent of the revenue from Ikea stores worldwide, according to regulators. Although Ikea was founded in Sweden in 1943, the parent company is based in the Netherlands. Ikea, one of the world’s largest, and most opaque, privately held companies, reported revenue of 36.3 billion euros, or about $43 billion, for the latest fiscal year. But for well over a decade, Mr. Kamprad, his three sons and his close business associates have relied on a complex corporate structure to slash the taxes that Ikea pays on such earnings, regulators say. From 2009 to 2014 alone, Ikea avoided paying an estimated €1 billion in taxes, according to a report last year by the European Green Party.
European regulators are concerned in particular about a 2006 Dutch ruling that allowed Inter Ikea to send a significant part of its franchise profits, in the form of an annual license fee, to a company in Luxembourg, where it was not taxed. Although Ikea is Swedish — the acronym combines Mr. Kamprad’s initials with those representing the bucolic area of the country where he grew up — the company is effectively owned by a Dutch trust controlled by the Kamprad family, with various holding companies handling its franchising, manufacturing and distribution operations.
Investigators also are looking at a subsequent ruling by the Dutch authorities in 2011 after European regulators deemed the Luxembourg tax structure illegal under state-aid rules. That ruling endorsed a model that allowed Inter Ikea to send a significant portion of its franchise profit, via interest paid under an intercompany loan, to a Liechtenstein company. The arrangement is designed to ensure maximum financial independence for Ikea, Mr. Kamprad has said.
The Ikea inquiry is the latest in series of investigations by European regulators since 2013 into the tax structures of multinational companies operating in Europe and how they are treated by the local tax authorities. “Already back in the ’60s, I started to look for ways to ensure Ikea could be kept as a private company to secure true financial independence and thus the freedom to have a long-term view on our investments and in business development,” he said in a statement posted on Ikea’s website. “I have often referred to that as securing ‘eternal life’ for Ikea.”
The European Commission has ordered several members of the 28-nation bloc to collect billions of euros in back taxes from companies including Amazon, Apple, Fiat and Starbucks. On Monday, in a separate statement issued in response to the regulators’ accusations, Ikea said it was “committed to paying taxes in accordance with laws and regulations wherever we operate.” It said it had operated “in accordance with E.U. rules” and pledged to cooperate with the inquiry.
This year, the commission took Ireland to court after the country refused to collect €13 billion from Apple in unpaid taxes following a 2016 decision by European regulators. Mr. Kamprad established the parent company, now called Inter Ikea, in the 1980s in the Netherlands, a country with attractive tax structures that have attracted Apple, Starbucks and many of the world’s biggest multinational companies. Using a Dutch subsidiary, Inter Ikea Systems, Inter Ikea collects fees from Ikea’s franchise businesses around the world equal to 3 percent of the revenue from all Ikea stores.
The commission also is investigating Luxembourg’s treatment of McDonald’s and of Engie, formerly known as GDF Suez, and a tax program for multinational companies in Britain. European regulators say that Ikea received a favorable ruling from Dutch tax authorities in 2006 that allowed Inter Ikea to send a significant part of those franchise profits, in the form of an annual license fee, to another company that Ikea created in Luxembourg, where it was not taxed.
Investigators are also examining how Ikea got a second favorable ruling from the Dutch authorities in 2011, after European regulators deemed the Luxembourg tax structure illegal under the European Union’s rules prohibiting companies from receiving state aid. That ruling endorsed a model that let Inter Ikea send a substantial portion of its franchise profit, via interest paid under an intercompany loan, to a company based in Liechtenstein.
The case is similar to one that Ms. Vestager brought against Starbucks in 2015. At issue were tax rulings, also issued by Dutch authorities, that she said helped the company artificially reduce its tax burden, an arrangement that ran afoul of the bloc’s state aid rules.
In addition to targeting companies like Ikea and Starbucks directly, Ms. Vestager has focused on employing a separate legal tactic to pursue countries that may be providing state aid to companies through special tax rulings. The rulings, known as comfort letters, often help the companies find the most favorable tax jurisdiction.
“All companies, big or small, multinational or not, should pay their fair share of tax,” Ms. Vestager said in a statement on Wednesday. “Member states cannot let selected companies pay less tax by allowing them to artificially shift their profits elsewhere.”
The Ikea inquiry is the latest investigation by European regulators since 2013 into the tax structures of multinational companies operating in Europe and how local tax authorities treat them.
The European Commission has ordered several members of the 28-nation bloc to collect billions of euros in back taxes from companies such as Amazon, Apple, Fiat and Starbucks.
The commission took Ireland to court this year after the authorities in that country refused to collect €13 billion in unpaid taxes from Apple after a 2016 decision by European regulators.
The commission is also investigating Luxembourg’s treatment of McDonald’s and Engie, the French power utility formerly known as GDF Suez, and a British tax program for multinational companies.