Wednesday, August 08, 2007

Tax Avoidance is "Green"

Hardly a month goes by without an IKEA catalog showing up on my door. For those that haven't been to an IKEA store, they are immense "destination" stores full of low priced furniture and other household items. IKEA is famous for its "green" activities; you can hardly walk without a placard explaining the pristine source of its raw materials and how they are operating in a sustainable fashion. Here is an article from their Seattle store lauding their commitment to the environment. I'd quote from the article but it is the usual "commitment" gibberish and not particularly enlightening.

One of the core elements of the environmental movement is a huge governmental role in the economy; we need to put taxes on activities that are not viewed as beneficial and an army of lawyers and regulators to ensure that "Big Business" doesn't run roughshod over ma' nature. In my experience a libertarian philosophy and serious environmentalism have very little in common.

From this you'd assume that the perfect place for the environmental movement is Sweden; their government spending consumes more than 50% of the GDP for the country and also they have heavy regulations on certain types of business activities. And IKEA is from Sweden - and they are environmentalists - and they thrive in a climate of heavy regulation and taxes - what more could you ask for?

In a story broken by the Economist in fact IKEA goes to incredible lengths to avoid paying taxes; through an amazingly complicated series of "foundations" and the fact that they are incorporated in the Netherlands and the founder of IKEA is a Swiss emigrant (who can negotiate their taxes with the state) IKEA essentially pays no taxes. Per the Economist article titled "Flat Pack Accounting":

"In 2004 IKEA paid taxes of 19 million Euros on profits of 553 million Euros"

This is an astonishingly low rate of around 3% - if they were truly incorporated in Sweden they'd have likely paid closer to 200 - 300 million Euros. If you are interested in learning about their corporate structure and details of how taxes are minimized in such an extreme manner, here is a link to an article from the Netherlands (in English).

The irony here is intense on so many levels; a "green" company coming from one of the "greenest" countries has a founder who goes to such extreme lengths to avoid taxes that he essentially gives up control of his corporation to a series of complex foundations and moves to the lowest-tax industrialized country in the world (Switzerland canton).

Why is this? I am only speculating but the founder of IKEA probably views the state not as a beneficial source of positive regulation and guidance but of a burden that will stop the growth and expansion of his enterprise. Years of taxes and red-tape must have had some sort of impact on him to shape his behavior in this manner.

Cross posted at Chicagoboyz

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