IKEA Hit With $171m Tax Claim as ATO Takes Aim at Decades of Profit Shifting

The Australian Taxation Office has launched its most serious action yet against IKEA Australia, issuing a $171 million tax claim after a lengthy investigation into what it alleges is decades of aggressive profit shifting out of Australia by the Swedish retail giant.

The move follows years of scrutiny over how IKEA—one of the country’s most recognisable brands—has generated billions in sales from just 10 Australian stores, while repeatedly reporting losses or wafer-thin profits to the tax office.

In the 2025 financial year alone, IKEA Australia raked in $1.765 billion in revenue, yet now stands accused by the ATO of failing to pay its fair share of tax, primarily through disputed transfer pricing and royalty arrangements that funnel vast sums offshore.

Millions Shovelled Offshore

ChannelNews has repeatedly reported on IKEA’s financial structure, which sees the Australian business pay hundreds of millions of dollars in franchise fees, licence fees and royalties to related European entities—payments that dramatically reduce its taxable income in Australia.

Between 2004 and 2014, IKEA Australia legally transferred more than $2 billion offshore under these arrangements. None of that revenue was taxed in Australia.

The ATO is now challenging whether those arrangements reflect genuine commercial reality—or whether they were designed primarily to shift profits out of Australia and into lower-tax jurisdictions.

Transfer Pricing at the Centre of the Dispute

At the heart of the ATO’s case is transfer pricing, the mechanism multinational corporations use to price transactions between their own subsidiaries.

While legal in principle, transfer pricing becomes controversial when companies set artificially high internal charges—such as royalties for brand use or franchise rights—thereby draining profits from high-tax countries like Australia and shifting them to countries with far lower tax rates.

In IKEA’s case, the ATO is examining royalty payments made by IKEA Australia to an intellectual property entity based in Luxembourg—a jurisdiction long criticised for facilitating aggressive corporate tax minimisation.

Because royalties are treated as business expenses, they slash taxable profits in Australia, Germany and France, while profits pile up offshore.

The Shadow of LuxLeaks

The current dispute revives uncomfortable memories for IKEA.

In 2014, the company was exposed in the Luxembourg Leaks (LuxLeaks) scandal, which revealed how Luxembourg granted secret tax rulings to multinational corporations.

Leaked documents showed IKEA used Luxembourg-based subsidiaries to channel profits from across Europe, exploiting favourable tax rulings approved by the Luxembourg government.

Some IKEA entities were found to be paying effective tax rates as low as 1–2%, a fraction of what businesses typically pay in countries where sales actually occur.

ATO Escalates After Years of Negotiation

After years of negotiations behind closed doors, the ATO has now escalated the dispute, issuing IKEA Australia with a formal “position paper” covering the 2016 to 2020 income years, along with other historical periods.

The potential tax liability asserted by the ATO is approximately $171 million.

The escalation was quietly disclosed in IKEA Australia’s latest financial statements lodged with the corporate regulator.

“IKEA is currently the subject of an Australian Taxation Office audit relating to the 2016 to 2020 income years,” the company admitted.

“During the 2025 financial year, the ATO served the group with position papers relating to historical transfer pricing and royalty withholding tax matters.”

Legal experts say a position paper marks a critical stage in an ATO dispute.

Law firm Arnold Bloch Leibler told The Australian that this step represents stage three of a six-stage process, with litigation typically looming at stage five.

IKEA Denies Liability

IKEA Australia has pushed back strongly, signalling it is prepared to fight the ATO in court.

“The group disagrees with the ATO’s audit position and intends to dispute any tax-related liability that may arise by way of the objections process or commencing court proceedings,” the company said.

It also claimed it does not believe tax is payable.

“Based on the information available at the date of these financial statements, the group does not consider it probable that tax is payable. As such, no provision has been recognised as at 31 August 2025.”

The company confirmed it has engaged external legal advisers.

Sales Surge, Profits Lag

Despite booming sales, IKEA Australia has long presented itself as a poor performer on paper.

Since 2015, when revenue stood at $827.4 million, sales have more than doubled to $1.765 billion in 2025. Yet during that same period, IKEA Australia reported losses in five separate years.

When profits were reported, they were often minimal—typically between $8 million and $26 million until 2021.

Only recently has profitability surged, with profits of $51.3 million in 2024 and $91.16 million in 2025.

“Unexplained Charges” and Opaque Costs

In 2018, IKEA Australia reported a $12.7 million loss, more than double the previous year’s loss, despite posting 13% sales growth to $1.39 billion.

The company blamed the loss on a “number of unexplained charges”.

That same year, financial statements showed:

Gross profit jumped 15% to $530.6 million

Advertising costs reached $45 million

Staff costs totalled $238.5 million

Franchise fees hit $43.5 million

“Other expenses” ballooned to $129.7 million

Those opaque expenses effectively wiped out profits.

Silence From Management

IKEA Australia is led by CEO Mirja Viinanen, who also serves as Chief Sustainability Officer for Australia and New Zealand—roles that place her at the forefront of the company’s public commitments to community engagement and ethical business practices.

Yet repeated questions about the company’s financial arrangements have gone unanswered. IKEA’s public relations firm has also failed to return calls.

Additional Legal Pressure

Adding to IKEA’s challenges, former employee Jason Muscat has launched legal action against IKEA Australia, alleging breaches of the Fair Work Act’s general protections provisions, which protect employees from adverse action for exercising workplace rights.

A Reckoning Decades in the Making

After more than 40 years operating in Australia, the ATO’s move represents the most serious challenge yet to IKEA’s tax practices.

While the company insists it has done nothing illegal, the audit signals a growing willingness by Australian authorities to confront multinational corporations accused of shifting profits offshore—particularly those that generate massive local sales while contributing comparatively little in tax.

Whether IKEA ultimately prevails or not, the case could become one of the most significant transfer pricing battles Australia has seen in years.