European Union investigating Netherlands private tax deal granted to IKEA subsidiary

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

The Ikea inquiry is the latest in series of investigations by European regulators since 2013 into the tax structures of multinational companies operating in Europe and how they are treated by the local tax authorities. In return, the IKEA shops are entitled to use inter alia the IKEA trademark, and receive know-how to operate and exploit the IKEA franchise concept. "We will now carefully investigate the Netherlands' tax treatment of Inter IKEA".

In relation to the 2006 ruling, an annual licence fee was paid by Inter IKEA Systems to I.I. Holding in Luxembourg.

Then during 2011, after the tax scheme in Luxembourg was branded illegal, Inter Ikea was able to arrange another tax ruling with the Dutch.

Under scrutiny are two Dutch tax rulings that may have given Inter Ikea, one of the Swedish corporate giant's divisions, unfair tax advantages that "have significantly reduced" the firm's taxable profits, BBC reported.

A spokesman for Inter Ikea Group said the way it had been taxed "has in our view been in accordance with European Union rules". To finance this acquisition, Inter IKEA Systems received an intercompany loan from its parent company in Liechtenstein.

The revelations came as a particular embarrassment for European Commission President Jean-Claude Juncker, who was prime minister of Luxembourg at the time when the tax deals were made.

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. "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.

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

In a blockbuster decision, the commission in 2016 ordered Apple Inc.to pay Ireland EUR13 billion, in what it said was uncollected taxes, a ruling both Apple and Ireland are contesting.

The EU will look at whether Ikea's tax affairs breach EU rules on state aid.

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

At a European Parliament hearing in March a year ago, Ikea said its tax affairs are in line with worldwide rules, echoing comments by other firms targeted by EU probes, including McDonald's and Apple.

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

The Commission will also assess whether the price Inter IKEA Systems agreed for the acquisition of the intellectual property rights and consequently the interest paid for the intercompany loan, endorsed in the 2011 tax ruling, reflect economic reality. The report stated that IKEA is said to have built up a network of subsidiaries in the Netherlands, Luxembourg and Liechtenstein.

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