EU to Investigate IKEA over Illegal State Aid in the Netherlands

EU to Investigate IKEA over Illegal State Aid in the Netherlands

The European Union announced this week that it has launched an investigation into IKEA, claiming that the Swedish company has received illegal tax benefits and an impermissible leg up on the competition in the Netherlands.

As reported by the Financial Times, the EU is looking into “two Dutch tax rulings that enabled Inter Ikea, the part of the Swedish retailer empire that controls the brand and franchise rights, to significantly cut its tax bills since 2006 using inter-company transactions that officials believe may not reflect economic reality.”

More specifically, the EU is investigating a tax ruling running from 2006 to 2011 in which “Ikea paid a significant part of its revenue as an annual licence fee to a Luxembourg subsidiary, which owned some of the intellectual property rights.”

Furthermore, the Financial Times’ Rochelle Toplensky and Richard Milne report that the EU is also focusing on IKEA’s 2011 purchase of “the brand IP from its Luxembourg subsidiary using a loan from its Liechtenstein parent,” a move that permitted the company to slash its Dutch tax obligations via  “the interest payable on that intercompany loan.”

European Politicians Speak Out on State Aid, IKEA & the Netherlands

European Politicians Speak Out on State Aid, IKEA & the Netherlands

The EU’s competition commissioner Margreth Vestager said, “All companies, big or small, multinational or not, should pay their fair share of tax. Member States cannot let selected companies pay less tax by allowing them to artificially shift their profits elsewhere. We will now carefully investigate the Netherlands' tax treatment of Inter IKEA.”

Green MEP Sven Giegold supported this decision and said, “As [with] many other big companies, Ikea has been using a series of tax loopholes for years to avoid paying taxes. 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.”

“We expect that in the end Ikea has to pay back state aid to the Dutch state. We don’t talk about peanuts in missing tax revenues,” Giegold added.

According to a report issued by the European Green Party, for the period running from 2009 to 2014, IKEA has skirted close to 1 billion Euros in taxes with the help of these types of tax structures.

IKEA and the Dutch Government Respond to EU’s Illegal State Aid Investigation

IKEA and the Dutch Government Respond to EU’s Illegal State Aid Investigation

IKEA responded to this investigation by stating the company is “committed to paying taxes in accordance with laws and regulations wherever we operate” and confirmed that “the way we have been taxed by national authorities has in our view been in accordance with EU rules.”

Additionally, the Dutch Ministry of Finance has agreed to cooperate and help the EU clarify its concerns regarding state aid between the country and the Swedish furniture giant.

In the past, says DutchNews.nl, the country’s “tax authorities have been censured … for so-called ‘sweetener deals’ to recruit multinational companies.”

For instance, two years ago following a European Commission decision on illegal state aid, the Netherlands was ordered to collect 30 million Euros in back taxes from Starbucks.

Do you have any specific insight into this case? If so, how do you think it will be resolved?

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IKEA image courtesy of Stanislav Samoylik / Shutterstock.com.

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