EU's Crackdown on Tax Evasion: Swedish Ikea May be Next Target

Earlier this week, the EU Commission ruled that Ireland had granted Apple undue tax benefits of up to $14.5 billion. This landmark judgment is by many pundits regarded as part of the EU's efforts to stop its member states from competing with each other on which country can provide the most advantageous tax breaks.

The European commission's ruling against Apple is the thus far the biggest blow dealt by Brussels in its long-running battle against multinationals and their tax affairs. Previously the commission ordered the Netherlands and Luxemburg to recoup some $34 million apiece from Starbucks and Fiat. Both cases involved the use of similar tax avoidance structures. Income from many other countries was shifted to the Netherlands and Luxembourg via interest, royalties and other intra-group payments.

However, the European Commission did not stop its investigations. Now, McDonald's and Amazon's shady activities are being examined in Luxembourg.

According to Johanna Cervenka, economic commentator at Swedish national broadcaster SVT, Ikea is likely to become the next target.

"Considering Margrethe Vestager's 'militancy,' there is some risk that Ikea pops in the European Commission's focus earlier rather than later," Cervenka wrote in her analysis.

After Ikea was featured in the LuxLeaks financial scandal, the Swedish company received the dubious title of "world champion of tax optimization" by the French newspaper Le Monde. According to confidential information about Luxembourg's tax rulings set up by PricewaterhouseCoopers, Luxemburg had given international corporations, including Ikea, extremely favorable tax treaties.

In a report from the Green Group in the European Parliament, published in February this year, Ikea was found to make use of loopholes in the law to pay itself royalties to reduce its overall taxation bill. This meant that the company may have underpaid about €1 billion in taxes during the years 2009-2014. According to the report, Ikea collaborated with Luxembourg, Lichtenstein and Belgium to achieve reduced taxation.

Earlier this year, Ikea was probed by the EU Tax Rulings Committee, together with Google and Apple. For its part, Ikea, very much like Apple, maintains it tries to act responsibly in tax issues and follows the laws and rules.

Family-run Ikea was founded in Småland County, Sweden, in 1943 by Ingvar Kamprad, who turned 90 this year. Its first furniture retail store opened in 1958 and has since expanded to over more than 40 countries. Last year, annual sales reached $33.8 billion, with around three-quarters of its revenues coming from Europe.