The European Commission has announced an in-depth probe into the tax arrangements of Ikea. This is part of a four-year campaign by Brussels to reduce aggressive tax avoidance by corporations in the continent.
The investigation concerns the Sweden-based retailer’s Dutch arm, Inter Ikea, and its deal with the authorities in the Netherlands.
Two rulings by Dutch courts permitted Ikea to bisect the entity into (1) Inter Ikea that oversees brand value and (2) Ikea Group that sells furniture. The latter is not subject to the investigation.
Ikea Group pays 3% of its annual revenues to Inter Ikea to use the brand concept. The royalties of Inter Ikea are not subject to taxation under Dutch law. As a consequence, the retailer escapes the hefty taxes ordinarily due in its native Sweden.
The Commission alleges that the deal amounts to unfair state aid towards the company.
In response to the announcement, Inter Ikea stated that it was “committed to paying taxes in accordance with laws and regulations wherever we operate.”
“The way we have been taxed by national authorities has in our view been in accordance with EU rules. It is good if the investigation can bring clarity and confirm that.”
The investigation into Ikea's tax arrangements follows a lengthy campaign by the Green party in European Parliament.
"This is a huge success for the Greens as it comes from our initial complaint. Europe works," said Green MEP Sven Giegold. "It is shocking that the Netherlands, a founding member of the EU, is one of the biggest tax havens in the world."
Since 2013, the European Commission has engaged in a virulent crackdown on corporation’s dodging tax. In all, it has examined over 1,000 tax deals between member states and corporate entities.
The most noticeable of these relate to Apple and Amazon.
Apple has long been embroiled in a tax battle with Brussels. The European Commission once calculated that the tech giant effectively paid a tax rate of 0.005% in its European HQ in Ireland.
Although Apple disputed this figure, the pressure on its tax arrangements has intensified. Last week, the Commission forced Ireland to collect €13 billion in back-taxes, after a ruling from the European Court of Justice.
Ireland will continue to fight its case that the taxes are not required.
In a separate, but equally headline-grabbing case, in October the Commission ordered Luxembourg to reclaim €250 million in back taxes from Amazon. Last week, the state has appealed against the case.
In this instance, prosecutors allege that a 2003 deal allowed the online company to attribute profits to a holding company that, through a complex series of corporate entities, was not liable to pay taxes.
Some of the corporate world’s biggest names have felt immune from such tax investigations. Many jurisdictions feared that profit-hungry companies would simply move elsewhere should corporate tax rise too high.
It seems as though the European Commission is keen to battle fiercely against any whiff of tax avoidance across the continent. Companies cannot easily move from the world’s larges single market. A such, the Commission seeks to be a strong advocate for fair taxation across multiple countries.
