European Commission investigates IKEA tax structure in the Netherlands

European Commissioner for Competition Margrethe Vestager | Michael Reynolds  EPA

The European Commission has launched an investigation into two deals between the Dutch tax service and Ikea that allowed the Swedish furniture giant to reduce its tax bill by hundreds of millions of euros.

This is not the first time that Ikea has been scrutinized by European officials.

"Although the EU Commission has turned its sights on a Swedish group, rather than the U.S. multinationals which have been its main target, its argument is familiar: profits have not been taxed anywhere, so there must be State Aid involved somewhere", Ian Hyde 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.

It will probe a 2006 deal on how Ikea calculates a license fee paid by a Dutch unit to a Luxembourg branch where it was exempted from tax.

European Commission's investigation is based to this scheme and to evidence that a Dutch subsidiary of IKEA has paid intellectual property royalties to a subsidiary in Luxembourg. "All companies, big or small, multinational or not, should pay their fair share of tax", the EU's anti-trust commissioner, Margrethe Vestager, said in a statement.

Recent EU investigations into illegal state aid have resulted in some major penalties.

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Earlier this month the EU General Court rejected an application by the USA government to intervene in the Apple state aid case, concluding that the U.S. did not have a sufficient interest in the result of the case. Inter IKEA received an intercompany loan from its parent company in Liechtenstein to finance the deal, the European Union said.

They'll also review a 2011 tax ruling on the reorganization of the company's tax affairs, looking at whether the price Inter Ikea Systems agreed on to buy intellectual property rights and the interest paid on an intercompany loan reflect economic reality. It also endorsed the interest to be paid under the intercompany loan to the parent company in Liechtenstein, and the deduction of these interest payments from Inter IKEA Systems' taxable profits in the Netherlands. More specifically, transactions between companies in a corporate group must be priced in a way that reflects economic reality.

The commission said it believed the tax treatment given to IKEA wasn't available to other companies in the Netherlands.

Ireland began receiving almost $15.33 billion in back taxes this month from Apple after a commission investigation determined that Apple used a loophole in Irish tax law to store much of its non-U.S. profits in the country.

The inquiry centres around two tax rulings made in the Netherlands, one in 2006 and one in 2011. The EU in 2015 ordered the Dutch government to recover millions of euros from Starbucks Corp.in allegedly unpaid taxes, a decision the Netherlands is appealing.

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

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