Ikea could face €1bn in back taxes as European Union probes sweetheart deal

Vestager to investigate IKEA's taxes

Ms Vestager ruled in August previous year 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.

In a statement released on Monday, the EC said, "The Commission considers at this stage that the treatment endorsed in the two tax rulings may have resulted in tax benefits in favor of Inter IKEA Systems, which are not available to other companies subject to the same national taxation rules in the Netherlands", Business Insider noted. Inter-Ikea Holding holds the trademark rights to Ikea and, like the Ikea Group owns a foundation. 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.

Between 2006-2011, the Netherlands subsidiary paid annual licence fees to a related Luxembourg company, I.I. Holding, which were likely deductible in the Netherlands.

The fee made up a significant part of Inter IKEA Systems' revenue and resulted in the shifting of most of the company's franchise profits to Luxembourg, where they remain untaxed, the European Union said.

The inquiry centres around two tax rulings made in the Netherlands, one in 2006 and one in 2011.

Investigators also are looking at a subsequent ruling by the Dutch authorities in 2011 after European regulators deemed the Luxembourg tax structure illegal under state-aid rules.

A senior Dutch EU official said it would look at the details of the case. The Dutch subsidiary financed the acquisition by taking out a loan from its Liechtenstein parent.

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Ikea also negotiated a deal in 2006 with the tax service allowing it to transfer a significant portion of its profits to Luxembourg, where it is not required to pay tax. Following global recognition that the worldwide tax system needed to be reformed to prevent BEPS, the G20 asked the OECD to recommend possible solutions.

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

The probe by the European Commission fits into a wider strategy to squeeze more tax revenue from large multinationals and other companies operating in Europe. She's already ordered Apple Inc., Starbucks Corp. and Amazon.com Inc.to repay tax while a probe of McDonald's Corp.is continuing.

The EU continues to investigate Engie's as well as McDonald's Corp.'s tax affairs with Luxembourg.

The Commission will also assess whether the price Inter IKEA Systems agreed for the acquisition of the intellectual property rights and consequently the interest paid for the intercompany loan, endorsed in the 2011 tax ruling, reflect economic reality.

Ikea said it complies with all tax rules, and would cooperate with regulators.


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