Economy

European Union regulators to investigate Ikea's Dutch tax deals

European Union regulators to investigate Ikea's Dutch tax deals

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.

Vestager has already made resounding decisions against giants like Apple, Starbucks, Fiat, and Amazon, is also investigating McDonald's fast-food giant and French energy company Engie.

The Commission said Dutch-based Inter Ikea, one of the Swedish giant's two divisions, may have been given unfair tax advantages by the Netherlands. In return, the IKEA shops are entitled to use inter alia the IKEA trademark, and receive know-how to operate and exploit the IKEA franchise concept.

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 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 EU's executive arm alleges the Netherlands has allowed Ikea to shift profits through different schemes to Luxembourg and Liechtenstein, where the money was not taxed. Systems bought the IP rights formerly held by Holding, using an intercompany loan from its Lichtenstein parent company.

European Competition Commissioner Margrethe Vestager also highlighted the need to treat all companies fairly for the sake of competition and stated that the Commission "will now carefully investigate the Netherlands' tax treatment of Inter IKEA".

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The Commission's investigation concerns the tax treatment of Inter IKEA Systems in the Netherlands since 2006.

The commission said two rulings by Dutch tax authorities, in 2006 and 2011, may have significantly reduced Inter Ikea's taxable profits. Although Ikea was founded in Sweden in 1943, the parent company is based in the Netherlands.

Inter IKEA's subsidiary, Inter IKEA Systems, recognizes significant income in the Netherlands.

In April, the Commission ordered Amazon to pay €250m (£221m) in back taxes to the Luxembourg government after ruling that a 2003 tax deal amounted to illegal state aid.

Recent EU investigations into illegal state aid have resulted in some major penalties. "This is because I.I. Holding was part of a special tax scheme, as a result of which it was exempt from corporate taxation in Luxembourg".

The role of EU State aid control is to ensure that Member States do not give selected companies a better tax treatment than others, via tax rulings or otherwise.

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.