Published: Tue, December 19, 2017
Markets | By Erika Turner

European Union to Investigate IKEA for Receiving 'Unfair Tax Advantages'

European Union to Investigate IKEA for Receiving 'Unfair Tax Advantages'

In its years-long crackdown of EU states giving out sweetheart tax deals to multinational corporations, the European Commission said Monday it has set its sights on the Netherlands' deal with one of two operators of Swedish home-goods giant IKEA.

The Commission is concerned that a pair of tax rulings by the Netherlands might have given the Swedish company's Dutch division unfair advantage in comparison to other businesses, said a EC press release.

European competition commissioner Margrethe Vestager said: 'Countries can not just allow selected companies to pay less tax.

"Member states can not let selected companies pay less tax by allowing them to artificially shift their profits elsewhere", she added.

The opening of an in-depth investigation gives the Netherlands and other interested parties the opportunity to comment, and does not prejudge the outcome. Specifically, the Commission will assess whether the fee endorsed by the ruling reflects economic reality given Inter IKEA Systems' contribution to the franchise business.

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.

"The Netherlands fully supports the Commission's work", a senior Dutch EU official said, adding the government would have to look at the details of the case.

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.

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At the heart of the probe is IKEA's franchising system.

The company's business model was changed to a franchise structure in the early 1980s, with Inter Ikea operating its franchise business.

According to the regulator, Ikea, which operates multiple companies across the Netherlands, Liechtenstein and Luxembourg, may have shifted profits between the countries so as to reduce its tax obligations.

After the European Union executive's tax hunt to American corporations, it is time for IKEA, the Swedish furniture store to undergo the Berlaymont's scrutiny, due to possible illegal practices for tax avoidance targeted.

This is the second Netherlands tax ruling challenged by the EU Commission.

Last month the Commission launched an investigation into a British tax exemption for multinational companies set up in 2013 by the then-Conservative-led government to attract companies to set up headquarters in Britain.

The European Commission has ordered several members of the 28-nation bloc to collect billions of euros in back taxes from companies including Amazon, Apple, Fiat and Starbucks.

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