Ikea's case study about its tax avoidance strategy.

1. Multinational Tax Avoidance
—— IKEA’s Case
Dan Tao 1401213454
Jop Mulder 1502010118
Marika Torcitto 1502010085
Philip Schulting 1502010099
Yashu Xie 1401214049
Zhan Mou 1301213352
Group 10：

2. Contents
Introduction
IKEA’s Business Description
IKEA’s Tax Planning
Tax Avoidance Analysis
CSR Analysis and Inspirations

3. • Corporate tax rates
- Double Irish and Dutch Sandwich
• Case study
- IKEA business description: the world’s
largest furniture company
• IKEA’s tax planning (only pays 3,5% of taxes)
• Tax avoidance analysis
- Find out shortcomings and advantages of Ikea’s tax avoidance strategy
• Conclusion
- How to balance tax avoidance and CSR
Agenda

4. Part One
Introduction01

5. 1-2 Overview: Tax rate
Corporate tax rate: overview
-US and Japan have the highest corporate tax rate, respectively 39% and 37%
-Virgin Islands, Bahamas an Bermuda have a corporate tax rate equal to 0% (no corporate tax rate)

6. 1-3 Overview: tax havens

7. 1-4 Intro to Tax avoidance
Double Irish with a Dutch Sandwich: Apple, Starbucks and Google ?
Double Irish with
a Dutch Sandwich
Several companies shift
profits in Tax Havens
territories for tax avoidance
:channeling cash flow through
the Netherlands and Ireland,
due to their lower capital gain
tax and corporate tax than US
tax rates
Method
Other strategies:
• Singapore Sling
• Bermuda black hole

8. 1-5 Intro to CSR
Socially responsible
firms: charity
activities and
foundations
Taxe advantage of
them to initiate
agressive tax
avoidance strategies
• “form of corporate self regulation integrated
into a business model.” With some models, a
firm engages in "actions that appear to
further some social good, beyond the interests
of the firm and that which is required by law.“
Mc Williams, Abagail (2001)

9. Part Two
IKEA’s Business Description02

10. • Founded in 1943 in Sweden by the just 17 years old Ingvar Kamprad
• Nowadays largest furniture company in the world with a revenue of 29
billion in 2014
• Sweden always known for high taxes
- Effective tax rate of 2014 was 56.4%
• Corporate tax 2014: 22%
- highest in 1989: 60%
• Ikea activities not set in Sweden
2-1 Intro to IKEA
• In 1973 Kamprad left Sweden for taxation reasons CT1970’s >50%

11.  Very specific and aggressive tax
avoidance strategy
 Is a charity organization (stichting)
therefore tax exempt
 Set in The Netherlands (tax haven)
 Tax burden 2.7% (2014)
2-2 IKEA overview
 Complicated structure
 Operations and franchising

12. 0
400
800
1200
1600
2010 2011 2012 2013 2014
Corporate Income Tax
Other Taxes and duties
Stores
Tax
Per
Continent
Revenue
2-3 Key numbers/facts
FY04 FY13 FY14
179 303 315
Europe America Asia South-America
222 51 23 0
0,0
7,5
15,0
22,5
30,0
37,5
03 04 05 06 07 08 09 10 11 12 13 14
Total revenue in billions of
euros

13. 2-3 Key numbers/facts
48%
22%
14%
14%
2%
2004
Group equity
Other Payables
Short-term Liabilities
Other non-current liabilities
Long-term liabilities
IKEA has managed to decrease liabilities
pays off loans every year
• 147.000 employees important employee.
In Sweden despite (un-swedish) behavior
• €1.46 billion food turnover.
• IKEA number 45 on the Forbes World's
Most Valuable Brands List
71%
12%
10%
4% 3%
2014

14. Sharing key IKEA expertise,
like logistics
-India helping women and
improving children literacy rate
In-kind donations of IKEA
products
-50.000 matrasses to Syrian
refugees
02 Goods
2-4 As a charity organization
IKEA supports
charity in
three ways:
2010 2011 2012 2013 2014
45 65 82 101 104
Financial support for programs

15. Part Three
IKEA’s Tax Planning03

16. 3-1 Yearly report
In millions of euros FY14
Revenue 29.293
Cost of sales 16.372
Gross profit 12.921
Operating cost 9.128
Operating Income 3.793
Total financial income and expense 352
Income before minority interests and taxes 4.145
Tax 801
Income before minority interests 3.344
Minority interests 15
Net income 3.329

17. 3-2 A video

18. 3-3 Organizational structure
IKEA
Operations Franchising

19. 3-3 Organizational structure
IKEA
Operations Franchising

20. 3-4 Operations
• INGKA holding is for-profit
• Wholly owned by Stichting
INGKA foundation
IKEA
Operations
INGKA Holding
(Netherlands)
Stichting INGKA
foundation
(Netherlands)
Franchising

21. 3-4 Operations IKEA
Operations
INGKA Holding
(Netherlands)
Stichting INGKA
foundation
(Netherlands)
Franchising
Operations
 INGKA holding
is for-profit
 Wholly owned
by Stichting
INGKA
foundation
 Stichting
 Tax exempt
 Largest non-profit
in the world
 Estimated $35
billion in assets
INGKA Holding Stichting INGKA
Foundation

22. 3-5 Franchising
• Franchisees pay 3% fees
• Privately owned and unknown
structure
IKEA
Operations
INGKA Holding
(Netherlands)
Stichting INGKA
foundation
(Netherlands)
Franchising
Inter IKEA
systems
(Netherlands)
Inter IKEA
Holding
(Luxembourg)
Interogo
Foundation
(Lichtenstein)

23. Part Four
Tax Avoidance Analysis04

24. OEM: Original Equipment Manufacture
 When OEM, IEKA’s tax will be equal to OEM companies’ tax which is based on tax assessable price (P2);
 When produce by IKEA itself, the tax is based on selling price (P2)
 Because P1>P2, so T1 > T2, OEM can reduce tax efficiently.
IKEA（Client）
Selling Price (P1)
4-1 OEM
Tax basis Manufacture company (Trustee)
Tax assessable price (P2)

25. 4-2 Cost Control
IKEA $1
Manufacture
Influence VAT
1*(1+17%)= 1.17
Customers $1.2
1.2*(1+17%)= 1.204
Input tax: Deductible
Output tax
Tax Bureau
Total tax= Output tax- input tax
=1.204-1.17=0.034
Cost control can reduce price, and then
reduce output tax, finally reduce total tax

26. 4-3 Increasing ads
DM advertising: Direct Mailing advertising
IKEA magazines: more than RMB 2
million/year in China；
(1) Effective market rate: 100%;
(2) Advertising fee belongs to SG&A
(Operating cost), increasing operating
cost, can reduce EBIT, and then reduce
tax.

27. 4-4 Compensation
（1）Balancing distribution
The workers’ salary are distributed monthly.
IKEA try to avoid large fluctuations, which can reduce the
individual income tax efficiently Because of progressive tax
rate.
（2）salary of workers
IKEA BD Sales Manager
Average
salary
10962 4226 11314
Most of workers (sales) can keep the lowest tax rate.
（3）Bonus
Bonus is distributed every 4 months instead of a
year.
According to the law, the bonus or a whole year
will be treated like the salary of a certain month
and count the tax.
（4）Three insurances and one fund
Endowment insurance,unemployment
insurance, medical insurance, and housing fund
are tax deductible, so IKEA will buy three
insurances and one fund for workers.

28. 4-5 Other methods
IKEA canteens
 Total revenue until 2008:
1.6 Billion dollars/ year,
 Tax rate of canteen: 5%;
Tax rate of products: 17%
Investment and research
 Choose the lowest tax rate
among different industries to
invest;
 Using government policies
Transportation methods.
(1) DIY: customers transport their
products by themselves;
(2) The third-party platform (3%)
VAT of transportation=0;
Other tax avoidance
methods
01
02
03

29. Part Five
CSR Analysis and Inspirations05

30. Though IKEA earns a lot with many strategic methods, whether IKEA’s
tax planning is ethical or consistent with CSR is a problem. We generally
think that IKEA doesn’t completely take the social responsibility.
Does IKEA’s Tax Planning be consistent with CSR ?
• Look from inside: safeguard the dignity and welfare benefits of workers.
• Look from outside: play a good role in social environment.
• Including economic, educational, cultural, environmental responsibility.
The main content of Corporate Social Responsibility:
5-1 CSR Analysis

31. Economic
Culture
(1) Economic: Decrease the tax income of
government, which may influence the social
welfare construction.
(3) Environment: Find the independent
manufacturing company to decrease the tax
may result in production improvement and
environmental damage.
(2) Credibility: The exposure of tax avoidance
of IKEA as an international company lead the
ruin of enterprise credibility.
(4) Culture: The exposure of tax avoidance
of IKEA may be harmful to its national
culture in the worldwide scale.
5-1 CSR Analysis
credibility
Why IKEA’s Tax Planning isn’t consistent with CSR ?
Environment

32. • Writer: Johan Stenebo, an old worker in IKEA for over
20 years, the personal assistant of Ingvar Kamprad
(the founder of IKEA).
• Main idea of this book: Reveals the truth of IKEA's
operations, including the hypocrisy of its founder, tax
avoidance planning by building complex branches and
massively damage of environment and so on.
A book about “The True IKEA” in 2009
5-1 CSR Analysis

33. Despite of the CSR issue, there may exist a large number of tax avoidance cases in the worldwide scale. The leaked documents
of ICIJ organization in Nov 2014 revealed the Luxembourg Scandal which shocked the whole world.
More than 340 global companies set Luxembourg
branches to "cover" secret tax avoidance.
• Companies set up branch offices in Luxembourg,
using the preparation of complex accounting
statements and legal framework to avoid tax.
• Luxembourg helped enterprises to avoid as much as
billions of dollars in tax.
• Luxembourg was trapped into a credibility crisis.
• Luxembourg promised not to be the haven of tax
avoidance in three years.
Luxembourg Scandal
5-2 Tax Scandals

34. P&G Inc.
Pepsi Inc.
IKEA Inc.
Apple Inc.
5-2 Tax Scandals
Representative Companies related to Tax Avoidance in Luxembourg Scandal
JP Morgan

35. 5-3 Inspirations
Tax avoidance may exist in
current multinational enterprises
under the economic globalization,
however the space should be
narrowed down in future.
Governments should take
measures to improve tax
system, such as joining anti-
avoidance group and shaping
the legislation system.
Multinational companies should
make reasonable tax plan, with
the consideration of the
Corporate Social Responsibility
rather than the profit only.
Inspirations
01
02
03
Multinational taxpayer:
Policy maker:
Future Trend:

36. Thank You !
Group 10