On 18 December 2017, the European Commission ("EC") announced that it is to open an in-depth investigation into tax rulings granted by the Netherlands to IKEA in 2006 and 2011. The EC has concerns that the two rulings may have granted Inter IKEA a selective tax advantage, in breach of EU State aid rules.
The Inter IKEA group operates on the basis of a franchise business, in which local IKEA shops worldwide pay a franchise fee of 3% of their turnover to Inter IKEA System, a subsidiary of the Inter IKEA group in the Netherlands.
The first ruling confirmed the annual license fee to be paid by Inter IKEA Systems for the period 2006-2011 to a Luxembourg group entity, the owner of intellectual property ("IP") rights related to the IKEA franchise concept. The EC doubts whether the amounts paid by IKEA Systems reflect Inter IKEA Systems' contribution to the franchise business (i.e., whether the level of payments could be considered at arm's length).
The second ruling deals with the IP restructuring within the IKEA group in 2011. It confirms the acquisition price for the IP rights paid by Inter IKEA Systems and, moreover, the interest to be paid on a intercompany loan with its Liechtenstein shareholder to finance the acquisition of the IP rights. Again, the EC doubts whether these payments reflect economic reality.
Since June 2013, the EC has been investigating various tax rulings granted to taxpayers by Member States. For example, similar to the IKEA investigation, the EC also challenged the level of license fees paid in the Amazon and Starbucks State aid cases.
The opening of an investigation by the EC does not prejudge the outcome of the investigation. The Commission will adopt a final decision at the end of the formal investigation.