European Union opens probe into Ikea over Dutch tax rulings

Ikea is the latest company ensnared in the European Union's sprawling tax probes. Photo / 123RF

Ikea is the latest company ensnared in the European Union's sprawling tax probes as regulators look at whether the retailer's revenue deals in the Netherlands allowed it to avoid hundreds of millions of euros of taxes.

The tax breaks may have given Inter Ikea Group, which operated the Swedish furniture maker's franchise business, an unfair advantage over rivals, the European Commission said in an emailed statement Monday.

It will probe a 2006 deal on how Ikea calculates a license fee paid by a Dutch unit to a Luxembourg branch where it was exempted from tax.

The EU will also look at a 2011 ruling on how the Dutch company paid tax on payments to a Liechtenstein unit.

A probe into Ikea, one of Europe's best-known brands, may ease criticism EU Competition Commissioner Margrethe Vestager has received for focusing on how US companies reduce taxes.

She's already ordered Apple, Starbucks and Amazon.com to repay tax while a probe of McDonald's is continuing. She's also suing Ireland for delays in reclaiming about 13 billions euros ($21.9b) from Apple during the appeal process.

Ikea may have avoided at least 1 billion euros ($1.6b) in tax from income from stores from 2009 to 2014, according to a report by Greens/EFA lawmakers submitted to the EU last year.

Vestager said in an interview last year that the EU was vetting those claims.

"Europe shows its teeth," said Sven Giegold, a German Green member of the European Parliament. "Ikea has been using a series of tax loopholes for years to avoid paying taxes.

It is the duty of the European Commission to stop these unfair behaviors and make sure that companies pay their taxes where they make their profits."

Inter Ikea Group said that "the way we have been taxed by national authorities, has in our view been in accordance with EU rules" and "it is good if the investigation can bring clarity and confirm that."

State aid investigations are a matter between the EU watchdog and concerned nations, Ikea said in an emailed statement. The company said it will cooperate and respond to any questions from Dutch authorities or the European Commission.

At a European Parliament hearing in March last year, Ikea said its tax affairs are in line with international rules, echoing comments by other firms targeted by EU probes, including McDonald's and Apple.

The EU will investigate the Dutch tax treatment of Inter Ikea Systems, looking at whether a 2006 tax ruling on an annual license fee paid to the Luxembourg branch reflects economic reality.

Regulators will assess "if the level of the annual license fee reflects" the company's contribution to the franchise business.

They'll also review a 2011 tax ruling on the reorganization of the company's tax affairs, looking at whether the price Inter Ikea Systems agreed on to buy intellectual property rights and the interest paid on an inter-company loan reflect economic reality.

That will involve an assessment of Inter Ikea Systems' contribution to the value of the franchise business and the level of interest deducted from Inter Ikea Systems' tax base in the Netherlands.

The holding company of IKEA Group, INGKA Holding B.V., as well as a majority of the group functions and management, are based in the Netherlands.