On 18 December 2017, the European Commission announced the opening of a formal State aid investigation into two tax rulings concluded by the Dutch tax authorities with Inter IKEA Systems BV in 2006 and 2011. This investigation concerns individual tax rulings and as such should not directly impact other taxpayers. Nonetheless, the investigation forms part of the Commission’s continuing broader efforts focusing on transfer pricing and valuation issues.

EU State aid rules disallow the granting of a selective advantage by an EU Member State that may distort competition by favoring certain undertakings. The opening of this new investigation confirms the Commission’s commitment to use State aid enforcement as a tool to further a broader tax reform agenda.

The Commission’s investigation focuses on various transfer pricing elements accepted by the Dutch tax authorities:

First of all, the Commission doubts whether the level of license fees paid by Inter IKEA Systems BV in the period 2006-2011 was at arm’s length in view of the activities carried out by Inter IKEA systems BV in the Netherlands. This is not the first time the Commission looks into the level of license fees; amongst others it did so in the Starbucks case and the Amazon case.

The second doubt concerns the acquisition price for intellectual property rights purchased by Inter IKEA Systems BV in 2012 and financed with a loan from a related party. The Commission will analyse more in depth whether the price that Inter IKEA Systems BV has paid for these intellectual property rights was not too high and whether consequently the interest on the acquisition loan would also not be too high. Recently, Commissioner Vestager indicated to be asking Apple further details on a similar intra group transaction, following the publication of the Paradise Papers.

The Commission will now verify whether the terms of the various intragroup transactions – license fees, acquisition price of the intellectual property rights and interest on the intragroup loan – were at arm’s length. The decision to open the formal investigation does not prejudice the final outcome of the case.

The Dutch Minister of Finance issued a press release, which remarkably did not include a statement that according to the Netherlands no selective advantage had been granted to the beneficiary of the tax rulings.

Today’s announcement by the Commission can be found here.