The EU is probing IKEA's Dutch tax arrangements

The EU is probing IKEA's Dutch tax arrangements

"Member States cannot allow some companies to pay fewer taxes by artificially relocating profits elsewhere can".

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. Inter-Ikea Holding holds the trademark rights to Ikea and, like the Ikea Group owns a foundation. In particular, the Commission's focus will be on whether the acquisition price adequately reflects the contribution made by Inter IKEA Systems to the value of the franchise business and the level of interest deducted from Inter IKEA Systems' tax base in the Netherlands.

In relation to the 2006 ruling, an annual licence fee was paid by Inter IKEA Systems to I.I. Holding in Luxembourg. The famed furniture retailer is the latest target in an European Union crackdown on the sweetheart tax avoidance deals that national governments offer to lure multinational corporations to their countries. To finance this acquisition, Inter IKEA Systems received an intercompany loan from its parent company in Liechtenstein.

The Commission said the first tax ruling, which covered 2006 to 2011, resulted in a significant part of Inter Ikea Systems' franchise profits shifting to a Luxembourg unit where it was not taxed.

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. It also endorsed the interest to be paid under loan to the parent company and the deduction of these interest payments from Systems' taxable profits in the Netherlands.

As such, this is a historical element of the case and not part of the investigation, the Commission said.

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"All companies, big or small, multinational or not, should pay their fair share of tax", said Margrethe Vestager, Europe's top official in charge of competition policy. In August 2016, she ordered Ireland to recoup more than €13 billion in back taxes from Apple, while this October she told Luxembourg to collect around €250 million against Amazon.

Regulators are also investigating the tax arrangements of McDonald's in Luxembourg.

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

The launch of the investigation into the Swedish retailer bolsters the EU's attempts to beat back accusations that it disproportionately targets American companies, particularly in its probes into alleged illegal state aid granted via favorable tax deals.

Under EU law, member nations are not allowed to give selective benefits of taxes to multinational groups that other firms do not have access to. "Ikea has been using a series of tax loopholes for years to avoid paying taxes", said German Green MEP Sven Giegold.