IKEA to Challenge ATO Over Alleged A$171 Million Tax Liability in Australia

IKEA has vowed to fight back against an Australian Taxation Office audit claiming the Swedish furniture company owes approximately A$171 million ($115 million) in unpaid taxes, saying it “strongly disagrees with its position.” The ATO believes that IKEA has shifted money offshore through disputed transfer pricing and royalty arrangements.

IKEA’s Australian business is reportedly structured in a way that reduces taxable income in Australia by paying franchise fees, licence fees, and royalties to related European entities. Between 2004 and 2014, IKEA Australia transferred more than A$2 billion offshore under these arrangements without any of that revenue being taxed in Australia. Royalties are treated as business expenses in Australia, effectively reducing taxable profits, the reports indicate.

The ATO has now chosen to challenge whether IKEA’s arrangements reflect a genuine commercial reality or exist primarily to shift profits into lower-tax jurisdictions from Australia. Royalty payments made by IKEA Australia to an intellectual property entity based in Luxembourg are among the transactions being examined. The ATO is understood to have issued IKEA Australia with a formal ‘position paper’ covering the 2016 to 2020 income years, as well as other historical periods, following years of behind-the-scenes negotiations.

IKEA has confirmed that it is the subject of an ATO audit covering the 2016 to 2020 income years. “The audit has been taking place over several years and we have worked collaboratively with the ATO to assist with its enquiries throughout the process,” the company said in a statement. However, IKEA expressed dissatisfaction with the ATO’s current stance. “We strongly disagree with the ATO’s current audit position and intend to dispute any tax related liability that may arise. We do not consider it probable that tax is payable to any of the matters subject to audit and as such, no provision has been set aside to do so,” it added.

The company also emphasized its broader commitment to responsible operations and contributions to society. IKEA stated that it is “committed to paying taxes in accordance with the laws and regulations wherever it is present,” asserting that it seeks to manage its operations responsibly in every country where it operates.

By fLEXI tEAM