Posted Oct 3, 2020 at 6:00 am.
IKEA uses yellow and blue from Sweden. Item names refer to Sweden. The design is Swedish inspired. The food in the cafeteria is Swedish.
However, contrary to popular belief, IKEA is not a Swedish company.
IKEA is more like two multinationals based in the Netherlands.
The first multinational, Ingka Group, operates most IKEA stores and is owned by a foundation in the Netherlands.
The second multinational, Inter IKEA Group, owns the IKEA concept and its intellectual property. It is ultimately owned by a foundation in Liechtenstein, a small country in Europe that is considered low. The two multinationals have made business agreements among themselves.
IKEA was founded in Sweden in 1943, but some of the company's activities moved to Denmark as early as 1973. IKEA has mainly operated from the Netherlands since the early 1980s.
"IKEA was founded in 1943 in Älmhult, Sweden. Several companies of the Inter IKEA Group are still based in Sweden. Inter IKEA Systems was founded in the Netherlands in the 1980s. The Netherlands has a long tradition of international trade and a good business climate in general. Looking back, we are pleased with this decision, ”said Inter IKEA Group, the Dutch-based multinational.
In the crosshairs of the European Commission
Since 2017, the European Commission has been investigating certain tax arrangements between Inter IKEA Group and the Netherlands. The European Commission is "concerned" that the Inter IKEA Group in the Netherlands is not paying enough tax on income from its intellectual property rights and franchise rights.
Competition laws in Europe prohibit a country from offering an extraordinary tax advantage to a particular company. It's illegal state aid.
All companies, large or small, multinational or not, should pay a fair share of taxes. Countries [européens] cannot allow some companies to pay less tax by allowing them to artificially transfer their taxes elsewhere.
Margrethe Vestager, European Commissioner for Competition
These words by Commissioner Vestager were published in 2017 when the investigation was opened, which is still ongoing.
The European Commission is targeting two tax schemes that were closed in 2006 and 2011 (the latter decision is still in force). These rulings by the Dutch tax authorities have enabled IKEA to lower its tax rate on its intellectual property income around the world.
"This is an aggressive form of tax planning," says Jan van de Streek, professor of tax law at the University of Amsterdam, in an interview with La Presse.
In exchange for the use of its intellectual property and its franchise system, Inter IKEA Group receives approximately 3% of IKEA store sales worldwide. These intellectual property rights and franchises generate approximately 1.2 billion euros per year for the Inter IKEA Group.
Taxation and Luxembourg
The first element of the investigation: the European Commission is investigating whether IKEA should have paid more tax between 2006 and 2011 on its intellectual property rights and franchise rights in the Netherlands. IKEA's franchise rights were partially owned by a company in Luxembourg, where IKEA did not pay tax on its income due to a tax arrangement under Dutch and Luxembourg tax laws.
According to the European Commission, a "significant portion" of the profits of the Dutch company Inter IKEA Group (Inter IKEA Systems) was thus transferred to the Luxembourg company which did not pay tax on those profits in Luxembourg.
In 2011, Luxembourg, under pressure from the European Commission, ended this special intellectual property tax regime.
Intellectual Property and Franchise Rights
The second element of the European Commission's investigation: the taxation of IKEA & # 39; s intellectual property income and franchise rights since 2011. That year IKEA transferred its intellectual property and franchise rights from Luxembourg to the current company in the Netherlands, Inter IKEA Group (Inter IKEA Systems), which bought the rights for EUR 9 billion.
To finance this transaction, Inter IKEA Systems received a loan of $ 5.4 billion at 6% interest from Interogo Foundation, a Liechtenstein foundation that ultimately owns Inter IKEA Systems.
Before paying tax in the Netherlands, Inter IKEA Systems has to repay the amount owed on its loan to the Interogo Foundation in Liechtenstein each year.
The European Commission is investigating whether the amount of the transaction and the terms of the loan are reasonable and comply with transfer pricing rules between member companies. The Commission currently considers that Inter IKEA Systems overpaid for the duties.
According to a document from the European Commission, Inter IKEA Systems could pay approximately EUR 70 million in income tax of EUR 400 million under the Dutch tax benefit scheme for the year 2014. and a turnover of 1 billion euros.
Inter IKEA Group declined to comment out of "respect for the integrity of the investigation" by the European Commission. Inter IKEA Group says it is participating in the investigation. The European Commission declined to comment on the matter.
Interogo, ultimate owner in Liechtenstein
The ultimate owner of Inter IKEA Group, the Interogo Foundation, is a foundation in Liechtenstein. In this country, the corporate tax rate is 12.5%. In comparison, the federal-provincial corporate tax rate in Quebec is 26.5%.
Over the past five years, Interogo's average tax bill in Liechtenstein was € 57 million, the company said by email.
The subsidiary of the Interogo Foundation, Inter IKEA Group, pays taxes in several countries for a total of € 301 million in 2019, of which 75% to the Netherlands and Switzerland.
“Taxes are an important contribution to society. It is important for the Interogo Foundation and its subsidiaries to conduct business responsibly, including paying taxes while respecting the laws, ”the Interogo Foundation told La Presse by email.
Why did you transfer IKEA to a foundation? The main objective of the Interogo Foundation is "to ensure the independence and longevity of the IKEA concept", according to the Foundation. “The foundation prevents the fragmentation of shareholders, which could possibly happen with family ownership or a stock exchange listing. The Interogo Foundation must also have financial reserves for more difficult days, ”she says.
The plan of the empire
What happens when you shop at IKEA? Where does your money ultimately end up? Follow the seven-step plan.
1) IKEA Canada (company in Canada)
When you shop at an IKEA store in Canada and on the IKEA Canadian website, you are dealing with IKEA Canada, the Canadian subsidiary owned by the Ingka Group.
The Canadian subsidiary generates sales of CAN 2.53 billion annually.
IKEA Canada does not disclose the amount of its winnings. Using Ingka Group & # 39; s total profit margin of 6% worldwide, we arrive at approximately C $ 151 million in profit for IKEA Canada.
For the past five years, the Canadian subsidiary IKEA Canada in Canada has paid an average of CAN 33.6 million in taxes per year. This is a tax rate of approximately 22% on its profits.
2) Ingka Group (company in the Netherlands)
Ingka Group, through its subsidiaries, owns most IKEA stores around the world. Its subsidiaries pay their taxes around the world, depending on their country of activity.
Profits and income
In 2019 Ingka Group generated a pre-tax profit of 2.5 billion euros on a turnover of 39 billion euros, or a profit margin of 6%.
The company paid 682 million euros in taxes that year in dozens of countries, a tax rate of 27% on its profits of 2.5 billion euros.
3) Ingka Foundation (foundation in the Netherlands)
This Dutch foundation owns Ingka Group. Since it is a non-profit foundation, it does not pay tax as a shareholder in the Netherlands when it receives dividends or income from Ingka Group. (Two other Dutch foundations are affiliated with Ingka Group, but the ultimate owner is Stichting Ingka Foundation.)
4) Inter IKEA Group (Inter IKEA Holding BV / Inter IKEA Systems BV)
Company in the Netherlands that operates the IKEA group and concept
This Dutch company is responsible for the franchising of the IKEA concept.
First, Inter IKEA Group manufactures IKEA items and sells them to IKEA stores (owned by Ingka Group). In 2019, Inter IKEA Group sold products to stores for an amount of 23.9 billion euros.
The Inter IKEA Group also owns and operates the intellectual property and franchise rights of IKEA. It sells IKEA's intellectual property and franchise rights to the group's stores in the different countries in exchange for 3% of those stores' revenues. Therefore, when you buy something in an IKEA store in Canada, IKEA Canada donates 3% of the value of your purchase to Inter IKEA Group in the Netherlands. In 2019, these franchise and intellectual property rights generated 1.195 billion euros worldwide.
Profits and income
In total, the Inter IKEA Group generated a pre-tax profit of EUR 1.9 billion in 2019 on a turnover of EUR 25.2 billion, or a profit margin of 7%.
The Inter IKEA Group paid 301 million in taxes in 2019, a tax rate of 16% on its profits. The company paid 75% of its taxes in the Netherlands (135 million euros) and Switzerland (90 million euros). The Inter IKEA Group also paid 35 million euros in taxes in Sweden, the country where IKEA was founded.
5) Subsidiaries in Sweden
Inter IKEA Group has several subsidiaries in Sweden, the country where IKEA was founded. Here are five Swedish subsidiaries:
IKEA of Sweden AB
This Swedish company is responsible for making and designing IKEA products. Its employees mainly work in Sweden.
IKEA Supply AG
This Swedish company is responsible for managing products in IKEA distribution centers and delivers to stores everywhere.
IKEA Industry AB
This Swedish company is responsible for the production of IKEA products. It has approximately 20,000 employees in 43 production centers in nine countries (but not Canada). The top 5 countries where most IKEA products are produced: Poland, Russia, Slovakia, Portugal and Sweden.
IKEA Communications AB
This Swedish company is the group's communications agency. In particular, she is responsible for publishing the IKEA catalog.
IKEA Food Services AB
This Swedish company is active in IKEA food and drink that can be bought in IKEA cafes and restaurants.
6) Interogo Foundation (foundation in Liechtenstein)
This foundation owns the Inter IKEA Group.
The main purpose of this foundation is "to ensure the independence and longevity of the IKEA concept, to own and run the Inter IKEA Group," according to the foundation's website. The Interogo Foundation reports paying taxes in Liechtenstein according to the tax laws of the country. His average tax bill for the past five years in Liechtenstein: 57 million euros per year.
7) Interogo Holding AG (company in Switzerland)
This Swiss investment company is a co-shareholder of the Inter IKEA Group, to which it provides capital and loans. This Swiss company is ultimately owned by the Interogo Foundation.