European Union to Investigate IKEA's Dutch Tax Arrangements

Member states can not let selected companies pay less tax by allowing them to artificially shift their profits elsewhere.

"The investigation should not be limited to the Netherlands, obviously the core of IKEA's tax avoidance system, but should also look at Luxembourg and Belgium", said Sven Giegold, a Green Member of the European Parliament in charge of tax affairs.

The EU said its investigation into the Swedish retailer of flat-packed furniture focuses on the Dutch government's treatment of Inter IKEA Systems, one of the two groups operating the IKEA business. This entitles the IKEA shops to use the IKEA trademark, and receive know-how to operate and exploit the IKEA franchise concept.

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.

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

Assess whether the annual license fee paid by Inter IKEA Systems to I.I. Holding, endorsed in the 2006 tax ruling, reflects economic reality.

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

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

European Competition Commissioner Margrethe Vestager also highlighted the need to treat all companies fairly for the sake of competition and stated that the Commission "will now carefully investigate the Netherlands' tax treatment of Inter IKEA".

In 2011, IKEA restructured as the Commission ruled in 2006 that the Luxembourg special tax scheme breached state aid rules.

Ireland began receiving almost $15.33 billion in back taxes this month from Apple after a commission investigation determined that Apple used a loophole in Irish tax law to store much of its non-U.S. profits in the country. Following global recognition that the worldwide tax system needed to be reformed to prevent BEPS, the G20 asked the OECD to recommend possible solutions.

Regulators are also investigating the tax arrangements of McDonald's in Luxembourg. Specifically, the Commission will assess whether the fee endorsed by the ruling reflects economic reality given Inter IKEA Systems' contribution to the franchise business.

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 report stated that IKEA is said to have built up a network of subsidiaries in the Netherlands, Luxembourg and Liechtenstein.

(Copyright © 2015. All Rights Reserved.)
 
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