The giant home furnishings retailer IKEA can expect a large bill for back taxes from the Norwegian state after it lost a second round in court last week. It failed to win a legal nod on any of its points in a case that has left it accused of simply trying to cut its taxes.
Neither the Norwegian tax authorities, a local court in Oslo nor the appeals court (Borgarting lagmannsrett) went along with IKEA’s arguments in a case that’s been part of an international debate over aggressive tax planning by multinational corporations.
Deductions from a restructuring rejected
At issue, reported newspaper Dagens Næringsliv (DN) over the weekend, was IKEA’s decision to sell various real estate assets to itself following a restructuring of the company in 2007. The giant Swedish retailer reportedly used a model from accounting and consulting firms Deloitte and PwC, in which the Norwegian stores were spun off from Ikea Handel & Eiendom into seven separate companies. The companies were then transferred to a newly founded Norwegian holding company owned by an IKEA company in the Netherlands.
A few months later, Ikea Handel og Eiendom bought the properties back for NOK 2.1 billion and financed the purchase with a loan from IKEA’s internal bank in Belgium. Then IKEA took around NOK 440 million in deductions for interest on the loan from 2008 to 2012.
Tax authorities for Norway’s eastern district (Skatt øst) refused to accept the deductions, claiming that the restructuring itself was “unreasonable and unnatural,” and aimed only at “disloyal tax planning.” The local court in Oslo (Tingretten) agreed, concluding that IKEA couldn’t present evidence of any business advantage other than saving on its taxes. The appeals court backed that conclusion, ruling that “even if there also were business motivations behind the restructuring of the real estate operation,” it was only “tax-motivated.”
DN noted how leaders of all G20 countries and the OECD have determined that such “tax tricks” carried out by multinational corporations make it difficult for national companies to compete. Just last week IKEA was also reported to the European Commission for its aggressive means of avoiding taxation by among others Eva Joly, the Norwegian-born judge and politician in France who played a key role in the corruption case against French oil company Total.
Norway’s tax director Hans Christian Holte called the court rulings “important,” adding that the case “touched on central themes within corporate structure and tax that both we and the international community are concerned about,” Holte told DN. “Therefore this type of clarification within the court system is important.”
DN reported that IKEA hadn’t decided whether it would appeal the appeals court decision to Norway’s Supreme Court.