IKEA Described As “Swedish Tax Dodgers, Milking Australia”
IKEA is a big foreign Company who manage to get away with generating billions in revenue and then avoiding paying taxes by letting overseas entities ‘debt load’ their account according to a leading financial journalist.
Michael West who writes for Inside Retail, has taken a close look at the big retailer who is cuddling up to Sonos in an effort to flog cheap networked sound gear, IKEA does not pull its weight in this country, a country where the schooling of its executives’ children is subsidised by taxpayers, where its business and its people are protected by a publicly funded police force, legal system and army.
One executive who supplies IKEA recently described the Company as “Swedish bastards” who are milking Australia for all their worth.
Ikea Australia recently appointed company veteran Jan Gardberg as its new country manager.
Formally the deputy country manager for Ikea in Russia, has 32 years of international Ikea experience which will come in handy when managing IKEA’s tax minimisation operations in Australia.
To demonstrate how unfair IKEA are in their dealings in Australia West compared the Swedish Companies operations, with that of locally listed business Nick Scali.
He points out that the Swedish furniture juggernaut had been in the cherished position of being permitted to trade in lockdown while small businesses have been shut down en masse.
West claims Nick Scali is far smaller, yet it has paid $32m in tax over the past two years whereas IKEA has paid just a touch over half a million dollars all up – that’s less than one million dollars on more than $3 billion in total income.
IKEA, whose parent is in the Netherlands – part of a tricky tax avoidance web of companies – racked up cash receipts from its customers of $1.7b last year, up strongly from $1.5b the year before, despite the virus.
He also pointed out that IKEA executives helped themselves to a large increase in pay.
Nick Scali made a fraction of that, disclosing cash from customers of $262m, down slightly from the year before while its profit was almost dead stable at $42m.
Apparently, IKEA gets away with not paying much in taxes via a mix of franchise fees and intellectual property payments to parent companies up the corporate ladder.
Every year, as its revenues climb, IKEA finds ways to bump up its costs.
The aim, ably assisted by tax dodging advisors KPMG, is to wipe out profit, to “offshore” it as, no profit means no tax to pay.
A whip through the accounts of both companies shows IKEA is raking out profits by “debt loading” too, that is, some offshore entity writes loans to IKEA Australia and the interest on those loans – some $20m a year – is siphoned overseas.
It’s pretty blatant but the trick with these things is to not make it so blatant that the ATO comes after you.
So it is that Nick Scali, with no offshore structures to exploit, disclosed no “related party transactions”.
Nick Scali pays interest of 1.78% on its long-term debt.
On the other side IKEA despite being far larger and having access to what West describes as “far cheaper financing”, was paying interest on its debts of up to 4.4%. Why? Because this interest is on debts provided by IKEA itself so the interest on the half a billion in loans from offshore flows offshore, almost $40m over the past two years.
It is impossible to see it from the accounts; it is not disclosed, but transfer pricing also plays a part.
IKEA buys its furniture from its associates offshore and the more it pays its foreign associates for this furniture, the more profit flows overseas to lower tax jurisdictions.
Despite bathing in cash from its Australian customers, IKEA has recorded losses over the past two years. It even recorded a tax benefit in 2019.
The way the tax lawyers, Big Four accounting wizards and HQs structure multinational companies means they are effectively agencies, not bodies corporate, and should be taxed as such. These are like fake companies. In a real body corporate, directors are obliged to maximise profit for their corporation.
Referring to multinationals who operate in Australia West claims their Australian directors actually have incentives to rob Australia and sign off on dodgy tax structures which maximise returns for some entity overseas.
This is the case with a lot of them and, to make the point in this story, Nick Scali directors (as this is listed on ASX and has no offshore structures to dodge tax) however are incentivised by the performance of the Australian entity alone. They are real directors. IKEA’s real directors arguably reside in another county. They are arguably shadow directors. They are the ones who really call the shots.