EU Commission launches investigation against IKEA's suspected tax avoidance

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In its press release, the Commission stated that it "has concerns that two [Dutch] tax rulings may have given Inter Ikea Systems an unfair advantage compared to other companies".

The European Commission said it would centre on concerns that two Dutch tax rulings may have allowed part of the group to pay less tax since 2006 - giving the company an unfair advantage over competitors and breaching state aid rules in the process. It collects franchise fees from IKEA stores throughout the world equal to 3 percent of the store's turnover.

The regulator alleges that Ikea, which operates multiple companies across the Netherlands, Luxembourg and Liechtenstein, may have shifted profits between the countries in order to reduce its tax obligations.

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.

Following the determination that the Luxembourg law's was illegal, Inter IKEA Systems purchased the IP rights held by I.I. Holding. The investigation will determine whether the company's tax structure is in breach of European Union rules on state aid. However, as a result of the Commission decision I.I. Holding would have had to start paying corporate taxes in Luxembourg from 2011.

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

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

In 2011, Inter IKEA changed the way it was structured. The Dutch subsidiary financed the acquisition by taking out a loan from its Liechtenstein parent.

The European Commission is not so much anxious about different countries in the European Union having different tax policies, in fact considering it is supposed to be one, seamless market, there are a whole range of company tax rates and policies across the EU. Another ruling from the Dutch tax authorities approved the price paid by Systems for the acquisition of the IP.

Under EU state aid rules, member states are prohibited from granting corporations tax benefits that are not available to all companies within the bloc.

Your local High Street furniture store has enough trouble competing with the likes of Ikea, with its massive stores, name recognition, buying power and marketing budget, without Ikea also having access to tax breaks that it could never use. The commission said it would scrutinize whether those payments reflect economic reality.

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.

The opening of an in-depth investigation gives the Netherlands and interested third parties an opportunity to submit comments.

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