IKEA: owned by a "charitable foundation"

It is technically owned by a Dutch charitable nonprofit -- a strategy that allows the group to pay 3.5% tax on annual profits of ?553m. However, the charity itself appears to do almost no charitable giving. Most of the money disappears into generic line-items like "other operating charges" which it refuses to explain.

In 2004, the last year that the INGKA Holding group filed accounts, the company reported profits of 1.4 billion on sales of 12.8 billion, a margin of nearly 11 percent. Because INGKA Holding is owned by the nonprofit INGKA Foundation, none of this profit is taxed. The foundation's nonprofit status also means that the Kamprad family cannot reap these profits directly, but the Kamprads do collect a portion of IKEA sales profits through the franchising relationship between INGKA Holding and Inter IKEA Systems.

Inter IKEA Systems collected 631 million of franchise fees in 2004, but reported pre-tax profits of only 225 million in 2004. One of the major pre-tax expenses that Inter IKEA systems reported was 590 million of "other operating charges." IKEA has refused to explain these charges, but Inter IKEA Systems appears to make large payments to I.I. Holding, another Luxembourg-registered group that, according to The Economist, "is almost certain to be controlled by the Kamprad family."

The Berne Declaration, a non-profit organization in Switzerland that promotes corporate responsibility, has formally criticized IKEA for its tax avoidance strategies...

http://tech.zicos.com/news.php/n/18633245/Ikea-is-owned-by-a-charitable-foundation-pays-only-3.5%25-tax

through any legal means. And sometimes they do it through less than legal means.

That is why it is necessary to have strong regulation of business because despite the fantasies of free marketeers, the invisible hand is usually givng us the middle finger.

From the article it appears that Sweden has adopted "corporate tax integration," a controversial policy that tax experts have been debating adopting here in the US for at least 20 years. It's actually considered a liberal position.

The idea is that corporate profits should be taxed at the rate of the individual shareholder, not at a flat corporate tax rate. It is usually coupled with a proposal for very steep increases in individual tax rates for wealthy people.

The first cliche of corporate taxation in the US is that corporate profits are taxed twice -- first the corporation pays corporate tax on corporate profits, then when the profits are distributed to shareholders as dividends, the dividends are taxed as income to the shareholder.

The right has been complaining about "double taxation" forever. But liberal tax experts have also complained that non-profit shareholders should not pay taxes on corporate profits. Their main concern over the year has been pension funds, which are non-profit. Pension funds despite being non-profit, effectively pay tax at the corporate level, when the corporation pays corporate income tax.

Corporate tax integration is a complicates scheme by which all corporate profits are taxed to the individual shareholder. Pension funds, university endowments and other non-profits would not pay tax at either the corporate level or the shareholder level. Combined with high progressive individual tax rates, the result of corporate tax integration would be wealthy individuals would pay high rates on corporate profits and pension funds, endowments and other non-profits would pay little or no tax on corporate profits. That's the loophole Ikea is using.

Apparently, Sweden has corporate tax integration and the non-profit character of Ikea's holding company allows them to avoid corporate tax, which in Sweden is around 27%. If there is no corporate tax integration, Ikea should pay 27% tax at the corporate level regardless of the characteristics of the shareholder (a non profit).

The US never adopted corporate tax integration, so this tax avoidance scheme could not happen here. The corporation would pay corporate tax, regardless of the fact that its shareholder owner is a non-profit.

Ironic