"Member States can not let selected companies pay less tax by allowing them to artificially shift their profits elsewhere", Commissioner Margrethe Vestager in charge of competition policy said.
All IKEA shops worldwide pay a franchise fee of 3% of their turnover to Inter IKEA Systems, a subsidiary of Inter IKEA group in the Netherlands. This entitles the IKEA shops to use the IKEA trademark, and receive know-how to operate and exploit the IKEA franchise concept.
The inquiry by the Commission is focused upon a pair of tax agreements between Inter Ikea and the Netherlands that the Commission alleges significantly lowered the company's taxable profits.
The first concerned the acceptance of a method in 2006 to calculate an annual licence fee to be paid to another company of the Inter Ikea group, based in Luxembourg.
As a result, a significant part of Inter IKEA Systems' franchise profits were shifted from Inter IKEA Systems to I.I. Holding in Luxembourg, where they remained untaxed.
Assess whether the annual license fee paid by Inter IKEA Systems to I.I. Holding, endorsed in the 2006 tax ruling, reflects economic reality.
Earlier this month the EU General Court rejected an application by the USA government to intervene in the Apple state aid case, concluding that the U.S. did not have a sufficient interest in the result of the case.
Ikea also negotiated a deal in 2006 with the tax service allowing it to transfer a significant portion of its profits to Luxembourg, where it is not required to pay tax.More news: Kaspersky hauling Homeland Security to court to overturn federal ban
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The probe by the European Commission fits into a wider strategy to squeeze more tax revenue from large multinationals and other companies operating in Europe.
The EU recently ordered several member states to collect back taxes in the billions of euros form Amazon, Apple, Fiat and Starbucks. "We will now carefully investigate the Netherlands' tax treatment of Inter IKEA", European Commission commissioner Margrethe Vestager said.
Regulators are also investigating the tax arrangements of McDonald's in Luxembourg.
Under EU law, governments can not give businesses selective tax benefits that are not available to other firms.
The news came after leaked documents showed that Apple had chosen to move a subsidiary from Ireland to Jersey in order to continue avoiding billions in taxes, after an European Union crackdown in 2013.
The launch of the investigation into the Swedish retailer bolsters the EU's attempts to beat back accusations that it disproportionately targets American companies, particularly in its probes into alleged illegal state aid granted via favorable tax deals. Specifically, the Commission will assess whether the fee endorsed by the ruling reflects economic reality given Inter IKEA Systems' contribution to the franchise business.
The commission said it believed the tax treatment given to IKEA wasn't available to other companies in the Netherlands.