Business

EU’s Vestager unpacks IKEA’s taxes

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Margrethe Vestager is back on the warpath.

The EU competition boss opened a formal probe on Monday into allegations that IKEA avoided tax on a large lump of its profits for over a decade thanks to help from the Netherlands.

The inquiry into the world’s largest furniture retailer is the latest in a series of cases that have targeted aggressive tax avoidance by multinationals and is the third to shine a spotlight on the Dutch tax regime.

So far, Danish EU commissioner Vestager’s tax crusade has seen her clash with marquee U.S. brands like Apple, Amazon, McDonalds and Starbucks. Her latest target is one of Europe’s great success stories, which was founded in Sweden in 1943 but decamped to the Dutch city of Delft in the 1980s and now employs 150,000 people worldwide.

EU investigators say Dutch tax authorities’ help in siphoning away IKEA’s profits tax-free to Luxembourg or Lichtenstein for more than a decade may be one reason why the flat-packed furniture specialist has been able to consistently sell armchairs, kitchen tables or garden barbecues at a discount to rivals — at the expense of other countries.

“All companies, big or small, multinational or not, should pay their fair share of tax,” said Vestager in a statement. “Member states cannot let selected companies pay less tax by allowing them to artificially shift their profits elsewhere.”

Vestager’s tax crusade comes amidst a wider EU push to clamp down on tax avoidance by multinationals, with France, Germany and the European Commission advocating for an overhaul of Europe’s rules. To its critics, the Dutch government is a member of the group holding back those efforts.

“The European Commission shows real willingness to shine a light on harmful tax practices offered by some EU member states to large companies,” said Aurore Chardonnet, a policy advisor at Oxfam, which has campaigned for tax reforms. “Two weeks after the EU adopted its first tax havens blacklist, this new case shows Europe still has to put its own house in order when it comes to ending tax havens within the EU.”

IKEA, which turned over some €35 billion in 2016, would be a prominent European scalp for Vestager, and a poignant rebuke to those, in particular in the U.S., who accuse of her of targeting U.S. companies.

In August 2016, she ordered Ireland to recoup more than €13 billion in back taxes from Apple, while in October she told Luxembourg to collect around €250 million against Amazon.

Her defenders point out that she is probing France’s ENGIE and has targeted Fiat Chrysler Automobiles, as well as many European multinationals located in Belgium.

But none of them have the same ring as Apple, Amazon and now IKEA.

Franchise fees

Investigators first made inquiries in April 2016 after reading allegations in the press about IKEA’s tax affairs and receiving a report published by MEPs from the Greens. In February that year, Green MEPs published a report that found IKEA companies had avoided €1 billion in taxes across Europe over the prior six years.

Sven Giegold, a Green MEP from Germany, welcomed the case: “In 2016, we estimated that IKEA may have shifted €1 billion between 2009 and 2014 — revenues which could be used for schools, hospitals or investment in public transports.”

At the heart of the probe is IKEA’s franchising system. Inter IKEA Systems, which is based in the Netherlands, collects franchise fees from all IKEA stores worldwide.

Commission investigators are looking at the royalties paid between 2006 and 2010 by Inter IKEA Systems to a Luxembourg subsidiary for the use of the IKEA intellectual property.

They suspect the Dutch tax authorities allowed Inter IKEA Systems to artificially inflate the license fees, which were not taxed in Luxembourg, to a point where they made up a significant part of its profits.

But in 2011, after Luxembourg changed its corporate tax rules after they were struck down by the Commission, Inter IKEA Systems bought the intellectual property using a loan from a subsidiary in Lichtenstein.

Investigators allege that a second Dutch tax ruling allowed Inter IKEA Systems to siphon most of its profits to Lichtenstein in the form of loan repayments.

The Dutch government said it “will, of course, co-operate with the investigation in order to establish whether it involves state aid.” It added, in a statement, that tax rulings “should not lead to selective advantages being granted to individual businesses.”

IKEA, for its part, said 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 company said.

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