European Union will probe retailer IKEA's Dutch tax deals

The furniture retailer’s Dutch tax arrangements are thought to be the subject of the inquiry

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.

The European Commission said it was looking into two tax rulings issued to Inter Ikea. This entitles the IKEA shops to use the IKEA trademark, and receive know-how to operate and exploit the IKEA franchise concept. That ruling endorsed a model that allowed Inter Ikea to send a significant portion of its franchise profit, via interest paid under an intercompany loan, to a Liechtenstein company.

It will also consider whether the price Systems paid for the IP rights and the interest paid for the intercompany loan, endorsed in the 2011 tax ruling, "reflect economic reality".

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.

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"The Netherlands will, of course, cooperate with the investigation in order to establish whether it involves state aid", the Dutch government said in a statement.

In 2006, the EC said a tax ruling by the Dutch, allowed Inter Ikea to pay a substantially less license fee to a Luxembourg based Ikea unit, thereby moving revenue into a jurisdiction where it was not taxed. 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.

The "in-depth" investigation into IKEA's tax dealings comes as part of the EU's push against the favorable taxation cuts being given by its member states to large corporations to ensure the steady flow of jobs and investment. Following global recognition that the worldwide tax system needed to be reformed to prevent BEPS, the G20 asked the OECD to recommend possible solutions. "We will now carefully investigate the Netherlands' tax treatment of Inter IKEA", European Commission commissioner Margrethe Vestager said.

A probe into Ikea, one of Europe's best-known brands, may ease criticism Vestager has received for focusing on how USA companies reduce taxes.

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The EU recently ordered several member states to collect back taxes in the billions of euros form Amazon, Apple, Fiat and Starbucks.

I.I. Holding paid no corporate tax in Luxembourg because of Luxembourg tax rules in place at the time.

In October the Commission decided that tax rulings given by Luxembourg granted "undue tax benefits" to online retailer Amazon of around €250 million which breached European Union state aid rules. In particular, the Commission will assess if 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.

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