By Lena Angvik
IKEA Handel og Eiendom, part of the home furnishing giant that operates in 43 countries, has lost a Supreme Court of Norway battle over the deduction of interest on inter-company debt involving real estate assets.
The October 18 judgment is another setback for IKEA. Separately, Members of the European Parliament (MEPs) claimed in February 2016 that the furniture chain avoided paying €1 billion ($1.1 billion) in tax over a six-year period, and requested a European Commission look into IKEA's tax arrangements. Competition Commissioner Margrethe Vestager has not yet announced whether she will open a state aid investigation.
In the Norway case, court documents translated from Norwegian show that IKEA restructured in 2007 and spun off real estate assets that were eventually transferred to a holding company. IKEA then bought the assets back for NOK 2.1 billion ($253 million) with a loan borrowed from IKEA’s bank in Belgium, taking almost NOK 440 million in deductions for interest on the loan between 2008 and 2012.
"The assessments which formed the basis for the reorganisation clearly show that reduction of tax was the most important motivational factor for the manner of implementation," Norway's Supreme Court ruled.
The issue in the IKA Handel og Eiendom case was whether interest on inter-company debt established as part of an inter-company reorganisation should be denied for tax purposes in accordance with the arm’s-length principle (the General Tax Act § 13-1) or in line with the Norwegian non-statutory anti-avoidance rules, according to Eivind Falck-Ytter, a partner at PwC in Norway.
“It's clear that in this case the arm’s-length principle couldn’t be used to modify the company’s income,” Falck-Ytter said. “The judgment is clearly stating that the transfer pricing regulations do not apply to this setup.”
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Source: IKEA |
IKEA ruling
The ruling could have implications for other multinationals operating with a similar structure in Norway.
IKEA spokesman Jan Christian Thommessen told International Tax Review that the company disagreed with the judgment. "The Supreme Court has upheld the ruling of the Court of Appeal, refusing deduction for interest in line with the assessment decision," Thommessen said. "We believe interest payments from IKEA Norway is deductible."
IKEA still faces the prospect of a Brussels-led state aid investigation after the release of a report commissioned by MEPs which alleged "large scale avoidance". The study, conducted by the EFA group and the Greens in the European Parliament, accused IKEA of avoiding tax by using companies owned through foundations in Liechtenstein and the Netherlands.If the European Commission does decide to investigate further, IKEA will join a growing list of multinationals under the microscope including household names such as McDonald's. The Commission has already decided against Starbucks and Fiat. Apple are Ireland are appealing a state aid ruling that found Apple owed €13 billion in back taxes.
