April 22, 2018

European Union investigating Ikea tax benefits

20 December 2017, 12:55 | Lionel James

European regulators 'to investigate Ikea' over tax

Vestager to investigate IKEA's taxes

Ms Vestager ruled in August a year ago that Ireland had granted the company illegal state aid in the form of generous tax benefits, which allowed the California-based company to pay nearly no tax on a significant proportion of its global sales.

The EU's competition chief has also asked Apple to provide details of its latest tax structure as regulators try to recover €13bn (£11.5bn) in back taxes to Ireland.

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. This entitles the IKEA shops to use the IKEA trademark, and receive know-how to operate and exploit the IKEA franchise concept. The EU is investigating if this mechanism is a device to enable Ikea to avoid paying tax on part of its profits.

Following the determination that the Luxembourg law's was illegal, Inter IKEA Systems purchased the IP rights held by I.I. Holding.

The method of calculating the license fee was endorsed by a 2006 private Luxembourg tax ruling, one of the two rulings that are the subject of today's announcement.

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

Earlier this month the EU General Court rejected an application by the USA government to intervene in the Apple state aid case, concluding that the U.S. did not have a sufficient interest in the result of the case. To finance this acquisition, Inter IKEA Systems received an intercompany loan from its parent company in Liechtenstein.

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

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The Commission said the first tax ruling, which covered 2006 to 2011, resulted in a significant part of Inter Ikea Systems' franchise profits shifting to a Luxembourg unit where it was not taxed.

"In July 2006, the Commission concluded that the Luxembourg special tax scheme was illegal under EU State aid rules, and required the scheme to be fully repealed by 31 December 2010". 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.

Inter IKEA's subsidiary, Inter IKEA Systems, recognizes significant income in the Netherlands.

The Commission subsequently ordered the tech giant to pay some €13 billion in taxes to the Irish Government, which vehemently opposes the decision.

The EU continues to investigate Engie's as well as McDonald's Corp.'s tax affairs with Luxembourg.

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 said it will assess whether the remuneration sanctioned under the second tax ruling reflects economic reality.

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