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  • Better Greenery Through Tax Minimization

    Posted by Carl from Chicago on August 8th, 2007 (All posts by )

    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 LITGM

     

    21 Responses to “Better Greenery Through Tax Minimization”

    1. Jonathan Says:

      I always liked IKEA.

    2. Robert Schwartz Says:

      Since our kids have all gone to that other university just north of Chicago, we have purchased a fair amount of furniture at IKEA. It is quite functional when installed at its primary destination but none of it has lasted more than 2 moves.

    3. Carl from Chicago Says:

      I am not allowed to go to IKEA because whenever I do I come back with a bunch of cheap stuff and there is no room for it in our place. The store is a lot of fun to visit, though

    4. zenpundit Says:

      I like IKEA bookcases – they are tall, relatively light, certainly cheap and unlike IKEA chairs, as no one sits on them they don’t fall apart.

    5. Erik Says:

      Well, it makes sense if you know more about the founder.

      Ingvar Kamprad is the closest thing to a selfmade man you can find in Sweden. He comes from a small village in the rural southeast province of Sweden, where the people are traditionally known to be inventive and to know the value of a penny. He literally started with empty hands, making furniture by himself and delivering them himself.
      His whole business philosophy was to keep down prices in any way possible, for instance using flat packages and let people put the furniture together themselfes. He started with this well before the Swedish Welfare state came to the size it is now, and his philosophy is pretty much the same still. Being what he is, I seriously doubt he ever voted for bigger government, he is a true entrepreneur. With this philosophy, I find it totally consistent to work to keep down any costs, and this includes taxes. I wouldn’t be surprised if Kamprad looks at taxes as any other cost, and simply made a cost/benefit decision when he moved.
      I also think it’s consistent with a certain type of common sense environmentalism, after all nobody wants to destroy the environment…

      I can’t speak for IKEA in the US, but they are not that outspokenly green in Scandinavia, it’s more as a part of their overall image of providing cheap affordable furniture of good quality, and not causing harm to anyone or anything while doing it.

      IKEA has always been a privately owned company in a country with government spending over 50% of GDP. You dont stay a private company, and grow as gig as IKEA has, in a country like Sweden by supporting higher taxes and paying them.

    6. Carl from Chicago Says:

      Erik, you summed it up pretty well:

      “you don’t stay a private company, and grow as big as IKEA has, in a country like Sweden by supporting higher taxes and paying them”

      this is true – and exactly why higher taxes drives out the people critical to keeping an economy growing, which in turn supports the vast government infrastructure that the greens know n’ love.

      I just think that if they thought about it they’d start to look for companies that pay the high taxes and make that a shopping criteria.

      I don’t know if I agree on the environmentalism in the nordic countries not being a big factor, though… I have some contacts there and they say that they are pretty vigilant, but they were in Norway, and maybe the 2 countries are that much different.

    7. Erik Says:

      I don’t think Norway and Sweden is that much different in that regard.

      I just dont see IKEA here as being especially famous for “green” things, not that much more than some other companies. But then again, in these countries, *not* being green is inviting a PR-disaster with environmentalists targeting them, so all companies need to have a certain green profile.

      IKEA do have environment friendly as part of their image, but don’t emphasize it much more. At least not the way I’ve seen them.

    8. Ginny Says:

      My aon-in-law and daughter love IKEA passionately, make trips just to go shopping.

      I agree that the shopping experience at IKEA is one of the most positive I’ve encountered. Their service is, however, nonexistent. The people on the floor are not helpful and often didn’t seem to know much about the products, when we ordered a couch they didn’t notify us when it arrived and trying to contact them was a nightmare, since the store at that time had a strange phone service that sent a customer off across the country to a phone bank some where else. As it turned out, the only way to find if the couch had arrived in the store was to go there and look for myself. (We live over a hundred miles from the closest IKEA.) If they want any customers that don’t just drop in, say isn’t this a fun place, buy some stuff and leave, I didn’t see it. They also put items up on the web and in no way indicate that they are sold out – not until days after the customer has ordered it, leaving all information.

      By the way, though, the interview may be the usual p.r. and anyone who shops at IKEA is probably already to some extent a globalist, I do think they try to encourage the picture that this is the kind of place people like Laurie David can shop. (Of course, while the stuff is cheap, it isn’t always durable – and the rich can always replace.) Still, I think this paragraph is interesting:

      : The IKEA Group has nearly 220 stores in 33 countries. Nearly 1600 suppliers manufacture products for IKEA. IKEA’s purchasing is carried out through 43 trading service offices around the world. IKEA mainly sources from European countries, but purchases from developing countries and countries in transition are rapidly increasing. A limited part of the supply comes from the industrial group of IKEA, Swedwood, which has 35 factories in 9 countries.

      One of the focuses of the IKEA culture is to be different. IKEA goes to places where none or few other companies have been. The easy choice would be to buy where the risks of exposing ourselves to social and environmental problems are zero. This is not the IKEA way. We also believe, by being present in difficult places, we can contribute to positive development through education and support of the local economy.

      I assume “countries in transition” are third world and probably have a lower minimum wage than Sweden (or the U.S.). IKEA is to some extent selling an image; what they do is not all that different from Sam’s – but their image is a good deal different. (And Sam’s is not that pleasant an experience, although the workers often appear more knowledgeable and pleasant and their system more user friendly.)

    9. Jonathan Says:

      Let me clarify my comment above. I like the concept of IKEA, the fact of its success, that customers like it (thus the success), and the fact that its owner has been creative in thwarting Swedish govt attempts to smother successful businesses. However, I acknowledge that a lot of the stuff that IKEA sells is flimsy and that their online and telephone-based ordering and service systems are rudimentary and often a pain to deal with. But on balance IKEA does a good job. And it does a good job of marketing. Americans tend to impute wholesome (and, to those Americans who are similarly inclined, leftist and green) qualities to Scandinavian companies and products. I am guessing that some Americans would not regard IKEA so positively if the company’s founder were American and the company were called “Bubba’s Furniture Mart.”

    10. Verity Says:

      Norway and Sweden are very different indeed. The Norwegians weren’t stupid enough to sign on with the EU.

    11. david foster Says:

      Ginny…what makes Ikea a pleasant shopping experience, given the customer service problems you cited? Is it perhaps a halo effect from liking the products? Or good organization of the stores?

      Is there anything Sam’s could do to make shopping there equally positive?

    12. Ginny Says:

      Ikea is just fun – fun with the tape measures, with the restaurant, but perhaps most of all with the bright color and what seems to me good design (ditto Target compared with Walmart). These two competitors are just more aesthetically pleasing – you don’t see Lileks going on about Walmart.

      Perhaps it is that “halo” of good north Europe, but I think it might also have to do with the fact that there isn’t much sun there and people gravitate toward bright colors, simple lines, and ways to let the sun in. (My son-in-law is from Westphalia and I was struck by how all the houses seemed to like architectural details that let more sun in – bay windows, etc.) All that is remarkably cheerful.

      Here, we get plenty of sun – too much sun; it fades our books and cracks our leather. But, still, Sam’s can be gloomy; it’s just a big box with no windows, the stuff is kept in boxes to give us the sense (and to cut down the work) that it is one huge warehouse. It’s all night there. Ikea seems like one huge store in the middle of the day. And Sam’s tends toward the conservative (dark leather, etc.) when it does do furniture, etc. Actually, those are the choices I’m more likely to make but they don’t brighten it up.

      I’ve tended to go with middle European and German immigrants who enjoy it so much because they clearly feel at home at Ikea – they actually treat it in some ways as I treat the capitol when we go back to Nebraska – a place that gives them great pleasure by being there. I don’t think it is just materialism (though it is some of that, from the way they buy) nor is it just status (some of that, too); it just “feels good” to them. They are so happy it tends to make me feel good, too. That is until I get home and my husband, who hates the phrase “some assembly required”, starts swearing at the furniture and the fact that some part is not packed with it or is deficient in some way.

    13. joseph hill Says:

      IKEA is the place to go for furniture, and like the first wife, it is but a starter for handy men.

      and lord, they get away with hardly paing any taxes! try that by corporations in America! None of us like taxes but it was good old Ike who noted that the infrastructure of our nation was central to national security. But what does a former college president know about such things.

    14. Erik Says:

      In Swedish universities, IKEA is often used as an example in both marketing and business courses, because of their strong corporate culture and image, as well as their customer service.
      I’ve never heard of anyone having any bad experience with their customer service in Sweden, and if you go to their stores the people there are very helpful.
      Sounds like it’s different in other countries. :-)

    15. Verity Says:

      Ginny writes: “Perhaps it is that “halo” of good north Europe, but I think it might also have to do with the fact that there isn’t much sun there and people gravitate toward bright colors, simple lines, and ways to let the sun in.”

      What is “good north Europe”?

      I am from northern Europe, which I have never regarded as good or bad – just a place – and we most assuredly do not gravitate towards “bright colors, simple lines and ways to let the sun in”. Africans go in for bright colours and patterns. Because of our long drawn out summernights – twilight at 11p.m. and soft, early dawns (3:30 a.m. in the summer) Northern Europeans are drawn to subtle greys,lilacs, deep purples, pale roses, soft yellows. I don’t think we like “simple lines”,either, as our landscapes are changeable and soft and complex and shift with the shadows and the light.

      I usually like Ginny’s posts, but find this analysis very fanciful and way off.

      Also, although I bought some flatpak bookcases from Ikea when I lived in Singapore, I’ve never been back. I think it’s hell.

    16. Tatyana Says:

      Oh god.
      IKEA is bad design. They just lift everything from real designers, from construction to color schemes. They “value-engineer” everything till it costs cents: naturally, the quality suffers. Even if due to some unfortunate birth defect you happen to genuinely like their pseudo-rural-Scandinavian, axe-sewn cabinets and coffee-tables, look out: don’t buy anything that’s not a solid wood (10% of total product). Which in 95% is pine. Very low grade, and often still moist.
      Ever tried ordering their kitchen? I did. Had to return to the store in Elizabeth, NJ 3 times: incompletes and mishaps. My sister did; closest IKEA in her case – across the lake on Canadian side, in Windsor. Had to return 5 times: incompletes and mishaps. Phone customer service: level of primitive African tribes.

      Store design..oh, it’s a long story, I won’t take up your time. I’ll just say – I was interviewed for senior designer position and I declined the offer. Despite their “European vacation/benefits package”. Despite being at that time on a junior level.

      Overall, if you’re a student and in need for some “young”, fun, very cheap furnishings with European “flair”, and you have no problem with throwing them away in half a year- IKEA is your place. In all other cases: buy only pieces made of natural materials. IKEA textiles are good bargain, considering their fiber content. [Disclosure: I buy my tea towels there]. Kitchen utensils – passable. Outdoor plastics – OK. Kids’ toys (to tear apart and see what’s inside) – fine. Emphatically – not furniture and not rugs, not if you consider your house a home!

      On the green issue: it’s a marketing tool, it doesn’t mean a thing in IKEA’ case. There are real green European products on the market, like German door hardware, certain Italian porcelain tiles, Portuguese cork flooring, Finnish laminated birch wall boards – made under standards 3 to 5 times stricter than ours; those are expensive – as it should be, considering the production costs.
      Go look at craigslis: what furniture people can’t get rid of? IKEA.

    17. Jonathan Says:

      I understand Ginny’s point perfectly. My more Germanic family members are drawn to the sort of northern European style that she refers to and that IKEA popularizes — the blond wood, primary colors and so forth. And of course the meatballs.

    18. Cassandra Says:

      Kamprad, Rausing and other wealthy Swedes ex-patriated when marginal rates were much much higher. I am sympathetic to negative incentives & distortions at excruciating rates of 90%, but far less so at 50 and below.

      But if you were truly fair, you would point out that most very wealthy Americans use similar forms of tax avoidance & minimization – some just as egregiously – be they trusts, foundations, transfer-pricing, offshore companies, or what have you to shirk the spirit of legal responsibilites to society adn State. Do you think Paul Allen or Larry Ellison own their megayachts personally? Of course not…YOU subsidize it. And yet both marginal income and corporate rates are much lower in the US. Libertarians (some of whom are my best friends) should perhaps consider the possibility that wealthy people might just be, well, ummm errrr greedy, and will not voluntarily part with their money, under ANY tax regime irrespective of the asymmetrical benefits they derive from the state in the form of protection of property for their substantial assets and the rule of law under which their businesses prosper. “Rights without responsibilities” are just as challenging for the finance of the State as they are for raising children…

    19. Jonathan Says:

      Cassandra:

      The individuals you mentioned are extraordinarily productive and have created $billions in wealth and thousands and thousands of jobs. They are subsidizing us, not the other way around. You are asserting that our respective countries would be better off if more of these super-productive people’s wealth were being spent by govt bureaucrats rather than re-invested by the productive individuals themselves. What evidence do you have to believe that this is true?

      I do agree with you that US taxes are too high. Sweden isn’t the only country that should reduce its tax burden on productive individuals.

    20. Verity Says:

      Their stores are hell and intentionally confusing. They are designed to lead you further and further in – to expose you to more and more product lines. Of course, there is nothing wrong with smart marketing,but I don’t want to cooperate in my own misery.

      Interesting that Tatanya says it’s the one brand people can’t get rid of on the internet.

      As far as their being “green” is concerned, I couldn’t care less and I don’t like commercial establishments trying to push their political philosophy down my throat.

    21. david foster Says:

      Cassandra…”both marginal income and corporate rates are much lower in the US”…not true for the corporate rates, in which the US is high by world standards:

      http://www.economist.com/finance/displaystory.cfm?story_id=9596317