Vestager: Member states can't let companies 'artificially shift profits'

The European Commission is investigating two Dutch tax rulings it says may have allowed IKEA to pay less tax and given the company an "unfair advantage over other companies".

The in-depth investigation concerns Inter IKEA, one of the two groups behind the IKEA brand.

"All companies – big or small, multinational or not – should pay their fair share of tax," said Margrethe Vestager, the European Commissioner for Competition, in a statement.

"Member states cannot let selected companies pay less tax by allowing them to artificially shift their profits elsewhere.

"We will now carefully investigate the Netherlands' tax treatment of Inter IKEA."

The Commission is investigating whether Inter IKEA Systems was given an unfair advantage compared with other companies through two tax rulings – one in 2006 and one in 2011 – in breach of EU rules.

Inter IKEA Systems is a subsidiary of Inter IKEA, which is based in the Netherlands and operates the franchise arm of the company.

It receives the franchise fees collected from IKEA shops worldwide.

The first ruling endorsed the way an annual licence fee, paid by Inter IKEA Systems to I.I. Holding – another subsidiary of Inter IKEA based in Luxembourg – was calculated.

I.I. Holding was then holding intellectual property rights required for the IKEA franchise concept and that were used by Inter IKEA Systems to create and develop the IKEA franchise concept. 

The Commission wants to assess whether the size of the licence fee reflected "Inter IKEA Systems' contribution to the franchise business".

After the Commission decided Luxembourg's special tax scheme was illegal under EU state aid rules, and that, as a result, I.I. Holding would need to start paying corporate taxes in the Grand-Duchy from 2011 onwards, Inter IKEA changed its structure.

Inter IKEA Systems subsequently bought the intellectual property rights formerly held by I.I. Holding and received an intercompany loan from a parent company in Liechtenstein.

The Dutch authorities then issued a second tax ruling in 2011 that endorsed not only the price for the acquisition of the intellectual property but also that the interest be paid under a intercompany loan to the parent company in Liechtenstein.

It also endorsed the deduction of these interest payments from Inter IKEA Systems' taxable profits in the Netherlands.

The investigation into the second tax ruling will, therefore, look into whether the acquisition price for the intellectual property "reflects economic reality" and the contribution made by Inter IKEA Systems to the value of the franchise business.

It will also investigate whether it reflects the level of interest deducted from the company's Dutch tax base.