Coverage: Ikea accused of avoiding $1 billion in taxes
European Union regulators will examine a new report that accuses Swedish, furniture company Ikea of avoiding at least $1.1 billion in taxes over the past six years.
Ikea joins Apple, Google and Starbucks on an ever-growing list of companies reviewed by the European Union for their tax structures.
Lucinda Shen of Fortune had the day’s news:
Ikea is once again under the microscope for corporation tax avoidance, in a time when U.S. multinationals Alphabet, Amazon, and Apple are also feeling the heat in Europe.
The Swedish furniture company has been accused of avoiding more than €1 billion in taxes over the past six years by Ministers of the European Parliament. The ministers are demanding an official probe into the companies tax practices.
According to the report commissioned by the Greens and the EFA group in the European parliament, the company has funneled much of its sales through tax havens on the continent.
Namely Luxembourg, Lichtenstein, and the Netherlands.
According to the paper, Ikea moved billions of euros from high taxation countries such as the U.K., France, and Germany into subsidiaries and undisclosed recipients in tax havens, paying little to no tax.
Vanessa Houlder of The Financial Times detailed how the company’s “optimized tax structure” works:
The business, which has previously acknowledged its “optimised tax structure”, is one of relatively few European businesses to be put under the spotlight in Brussels where officials and campaigners have mainly focused on US multinationals.
The report alleged that the company avoided paying tax on 84 per cent of the €14.3bn in royalty income it received from Ikea stores around the world, although it said a “definitive” calculation of the tax savings was not possible given a lack of data in the public domain.
Ikea Group said it could not comment on the report which it had not seen. But it said in its last financial year it paid €822m of corporate tax at an effective rate of 19 per cent, plus €700m of other taxes such as property levies.
It said: “The Ikea Group pays taxes in accordance with laws and regulations, wherever we are present as retailer, manufacturer or in any other role. We have a strong commitment to manage our operations in a responsible way and to contribute to the societies where we operate.”
Molly Scott Cato, the Green tax policy spokesperson said: “Ikea has deliberately created this multilayer company model to enable it to shift hundreds of millions of euros through several EU tax havens, with Liechtenstein the end destination for much of this, to make sure it remains untaxed.”
The structure was set up by Ingvar Kamprad, the 89-year-old founder of Ikea, who split his company in two in the 1970s, placing each half under the ownership of a foundation to give Ikea “eternal life”. Ikea is split into the Ikea Group, which is the main franchisee, and Inter Ikea, which owns the rights.
Ivana Kottasova of CNN Money explained how the European Union is working to crack down on corporate tax avoidance:
The report estimated that for 2014 alone, the tax avoidance led to 35 million euros ($39 million) of missing tax revenues in Germany, 24 million euros ($26 million) in France, and 11.6 million euros ($13 million) in the U.K.
Countries like Sweden, Spain and Belgium are likely losing between 7.5 million euros and 10 million euros ($8.5 million to $11.2 million), the report claims.
Related: ‘Days are numbered’ for tax loopholes
“Profit shifting” is a common practice for multinational companies operating across Europe. They establish headquarters in low tax countries, such as Ireland or Luxembourg, and then funnel most of their European profits through there.
The European Union is trying to crack down on this kind of corporate tax avoidance, aiming to close legal loopholes that allow companies to minimize taxes.
Under new rules, countries will now be able to charge corporate taxes even if companies transfer their profits elsewhere.