Since the LuxLeaks scandal in 2014, there has been an almost daily diet of new corruption scandals involving the exposure of large corporations evading tax on a grand scale. The Commission responded by introducing a raft of measures against tax dumping at the end of January. But that is too little, as shown by a new report published by the Green parliamentary group which has shone the spotlight on IKEA’s dubious tax structures.
It seems that IKEA has structured its business in such a way that it is possible for the company to funnel hundreds of millions in profits through various EU tax havens, thereby ensuring that this money remains exempt from taxation until it arrives in Liechtenstein, one of the biggest tax havens in Europe.
What it takes to steer clear of paying billions in tax
IKEA runs over 300 branches worldwide, operates two secret foundations, uses four tax havens, has a well disposed tax authority in the Netherlands and a tax deal with Luxembourg up its sleeve.IKEA_Twitter_440x220
IKEA purports to consist of two independent groups: the IKEA Group and the Inter IKEA Group. The corporation pays interest to itself under this guise and can reduce its overall tax bill in this way.
IKEA Group and Inter IKEA Group therefore act as if they were two independent corporate units, disguising their affiliation in order to save tax.
From 1991 to 2014 the Inter IKEA Group managed, through the vehicle of a Dutch conduit company, to avoid paying tax on 84 per cent of the staggering 14.3 billion euro income from interest. These receipts of 14.3 billion euro in interest are taken by IKEA branches all over the world. And tax is paid on only a fraction of it in Europe.Ikea2
The secret foundations and the crafty group structure make it very difficult to follow IKEA’s activities. The large-scale enterprise keeps its payee accounts under wraps. Nevertheless, there are many indications that the money is funnelled through the Netherlands and Luxembourg to Liechtenstein and through other tax havens with very low rates of taxation. IKEA pays tax at a rate of just 0.09 per cent in Luxembourg, for example, thanks to tax deals.
IKEA uses the Dutch legal system like a revolving door, with interest fees entering the country untaxed and leaving it again in a different untaxed form. In their final destination of Liechtenstein the shares in profit of the foreign companies are then completely exempt from taxation. And IKEA saves itself billions because the channelling of the interest from every IKEA branch into the Netherlands is estimated to have cost the EU countries one billion euro since 2009.
In 2014 alone, eight EU countries lost out on 162.2 million euro in tax through this evasive practice – Austria, for example, was deprived of four million euro in tax.
The example of IKEA shows how difficult it is to expose tax fraud when a gigantic company negotiates tax deals, cultivates secrecy and exploits tax havens. The only countermeasures which can help are as follows:
1) Tax harmonisation: corporations must be subject to the same rate of taxation all over Europe and disclose their finances.
2) Transparency about the activities of multinationals
3) The European Council must agree a package of measures which will close tax loopholes in Europe for good.
4) National and European authorities must launch open inquiries into corporations and their taxation practices, as has happened in the past.
The anti-dumping package of the Commission allows IKEA and other multinationals to keep exploiting tax loopholes. It appears to ignore the reality of the tax competition between the EU countries. The Commission must point the finger at these methods practised by IKEA and inform the public.
Read the full report here.