Does IKEA truly deserve its non-profit status?

Furniture giant IKEA is a company of two faces: its public image is one of determined commitment to charity and sustainability, but behind the scenes, the firm inexplicably operates as a non-profit entity

 
IKEA’s sustainability efforts contribute to its status as a non-profit organisation, but many have questioned whether such a title is truly deserved  
Author: Jules Gray
January 12, 2016

Despite having a reputation as a store that people loathe having to visit, IKEA has established itself as the world’s premier place for all manner of cheap furniture. It has expanded rapidly over the last few decades, becoming the natural first suggestion when anyone says they need a new piece of home furnishing.

With reported global sales of €26bn each year, the company is far and away the largest furniture retailer in the world. It now has around 135,000 employees spread across 44 countries around the world, and whenever a new store opens, its presence is seen as a signifier of a newly gentrified region.

However, thanks to a somewhat unique corporate structure, the company has managed to position itself as a non-profit organisation that doesn’t play by the same tax rules as its rivals – indeed, IKEA is reported to have managed to pay around 33 times less tax than its rivals. While charitable organisations are rightly given tax exemptions that enable them to continue to do their good work, it is somewhat questionable whether a company the size of IKEA – which is unrivalled within its marketplace – deserves such a status.

Charitable CEO
Swedish businessman Ingvar Kamprad founded the firm in 1943. Though official figures are hard to come by, Kamprad claimed in 2013 that his wealth was a mere €108m, a disclosure that was forced from him after he chose to move back to Sweden from the tax haven of Switzerland. However, despite his claims, it is thought that he is worth considerably more, with some estimates putting his empire at around €43.2bn and the value of IKEA itself widely thought to be around €66bn. In fact, Kamprad is considered to be the eighth wealthiest person in the world. However, according to a 2014 article in Australian Financial Review, the 89-year-old Kamprad insists that he gave away all his wealth to charity back in 1982. The main charity in this case – a Dutch institution called the Stichting Ingka Foundation – was set up with the intention of “safeguarding the future of furniture”.

Kamprad has recently begun paying normal taxes in his homeland of Sweden, having lived outside the country for more than 40 years: he fled in 1973 to avoid paying the high levels of tax that the government of the time imposed, and has lived in Switzerland for much of the time since. This is despite his passion for his homeland, with all of his stores proudly promoting a variety of Swedish products, including food.

Part of the reason for his move back to Sweden is the new, lower tax rate that the country is offering. However, despite this relocation back to the company’s homeland, the Stichting Ingka Foundation continues to enjoy a non-profit status, resulting in minimal tax levels for the whole company. This fact comes in spite of its position as the leading furniture retailer in the world, operating within a marketplace full of privately run businesses that are required to pay normal levels of tax.

€26bn

IKEA’s reported annual
global sales

375

Stores worldwide

884m

Store visitors every year

Not for profit
IKEA has taken pains to position itself as a caring, sustainable and environmentally conscious firm in recent years. Investments in renewable energy schemes have come alongside a series of community projects and plans to encourage people to save on energy and waste in their homes. The firm’s not-for-profit status has partially come as a result of its stated ambition to provide cheap and affordable furniture to aid living standards, with its mission statement claiming that it wants to “create a better everyday life for the many”. In the same statement, the company claimed: “Our business idea supports this vision by offering a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them.

“Low prices are the cornerstone of the IKEA vision and our business idea. The basic thinking behind all IKEA products is that low prices make well-designed, functional home furnishings available to everyone. We are constantly trying to do everything a little better, a little simpler, more efficiently and always cost-effectively.” However, critics across the globe are beginning to question whether this is in fact true.

Despite the caring demeanour, the finer details of IKEA’s corporate structure suggest that it isn’t quite as generous as appearances might suggest. The Stichting Ingka Foundation is reported to have made billions of dollars in profit, but has donated relatively small amounts to actual projects. Indeed, 10 years ago the foundation was estimated to have accrued around €33.5bn in funds in a report by The Economist, which made it the world’s wealthiest charity at the time. The article went on to point out just how stingy the foundation was, giving comparatively little to projects or other charities while paying considerable amounts to the Kamprad family itself.

Instead of pouring its resources into charitable projects, the foundation owns Dutch company Ingka Holdings. This firm in turn owns the IKEA Group, which operates all of IKEA’s global retail stores. Such a complex structure isn’t entirely unheard of, but in this instance, the fact that Ingka Holdings is owned by a non-profit foundation means that it has been able to secure far lower tax rates than its competitors. However, the structure of the company gets even more convoluted: the ‘IKEA’ trademark itself is owned by yet another company called Inter IKEA Systems, which is based in the tax haven of Luxembourg. This firm takes care of the franchising side of the business, while Ingka Holdings is in charge of operations.

In response to the article by The Economist, Kamprad did make an effort to change the structure of the foundation in the Netherlands so that it would contribute more of its resources towards fighting child poverty around the world – however, many global firms run charitable programmes without qualifying for non-profit status, and as a result, questions still remain over whether IKEA’s corporate structure truly warrants this designation.

As recently as November, the company was doing battle with a US tax authority, when a much-delayed store being built in Memphis, Tennessee faced challenges from the Shelby County tax assessor over a $9.5m tax break that IKEA had received from the local government. While IKEA’s store is highly coveted in the area, signifying gentrification and bringing in much-needed new jobs, concerns over a major corporation receiving such a generous tax exemption are understandable.

Green fingers
The company has been doing its part in certain areas, however. Its sustainability efforts have been widely praised; in particular, its determination to run operations using almost entirely renewable energy sources. Earlier this year, the company unveiled a massive campaign to highlight its green credentials, dedicating a huge amount of money to making its retail stores and factories more energy efficient.

Thanks to a somewhat unique corporate structure, the company doesn’t play by the same tax rules as its rivals

In an interview with innovation website Co.Exist in June, IKEA’s Chief Sustainability Officer, Steve Howard, spoke of how the company is committed to fighting climate change through its business practices. Having pledged €1bn towards renewable energy and climate change combatting schemes, Howard spoke of how the business community was only now beginning to take climate change seriously: “We looked at this issue and said there hasn’t been enough positive advocacy from the business community. It’s only now that we’re starting to see more businesses step up in this space.”

While many other firms have invested considerable sums of money into existing renewable projects, or have taken stakes in other schemes, IKEA’s approach has been to wholly own the projects they’ve invested in. The company currently has around 23 wind farms and 700,000 solar panels around the world, according to Howard. He told Co.Exist: “We’ve said we’ll go a little bit further and directly own and operate the renewables ourselves. We haven’t got a specialist, dedicated team who manages our wind operations worldwide – we’re an independent renewable power company at the same time as a home furnishings business.”

Part of the reason for purchasing its own renewable energy infrastructure was to insure against an uncertain future for the global energy market, said Howard. “I’ve often said that, from a sustainability point of view, you can always construct a business case for doing the right thing. This delivers a deep return on investment. But it’s also the most enabling thing we can do to help grow renewable energy production worldwide at a time when we need to really rapidly decarbonise our energy systems. It’s a meaningful thing that we can do at scale.”

While IKEA has pressed ahead with many of its renewable partnerships, in November it was reported to have cancelled a large deal with Hong Kong-based Hanergy Thin Film Power, a solar panel maker that is currently under investigation for questionable accounting policies. While IKEA didn’t use the panels itself, it has sold them within its stores.

The company’s pledge of €1bn for renewable technologies and its stated commitment to powering all stores using renewable energy by 2020 are certainly laudable. However, questions remain about whether such promises are mere window dressings for a hugely profitable company that has come under intense scrutiny in recent years for its tax affairs.