Wednesday, May 17, 2006

    The Truth About IKEA

    Maybe that title should be Can I Deduct My IKEA Purchase? The current issue of The Economist has a 1-pager about IKEA - some little known truths.

    Titled Flat-pack accounting the article starts by revealing this well-known Swedish exporter has not been Swedish since the early 1980's! The low cost furniture and somewhat simple designs has made this retailer a hit with the public. When I lived in Southern California (now Mexifornia) there were many to be found. When I was near San Francisco (now Tootsieland) an IKEA opened in the Berkley-Oakland area and was covered by the local media as if gold had fallen from the sky.

    A Wal-Mart or Target business structure is pretty basic - and they pay mucho pesos in taxes. IKEA on the other hand, is not as easily structured. It turns out IKEA is a charity, and as so, has avoided paying huge amounts of taxes - basically sucking money out of an area without paying as much as a normal for-profit business (they do pay some tax). This scheme minimizes taxes, minimizes disclosure requirements, and handsomely rewards the founding Kamprad family - as well as making IKEA impervious to any takeover attempt.

    The parent for all IKEA companies is Ingka Holding, a private Dutch-registered company. Ingka Holding is owned entirely by Stichting Ingka Foundation - a Ductch-registered, tax-exempt, non-profit-making legal entity. So how much non-profit do they earn?
    Sales-the only financial information that IKEA releases-for the year to August 31st 2005 were €14.8 billion, 15.6% up on a year earlier. And there is plenty of scope for more stores. Ingka Holding has only 26 outlets in America. By contrast, in Europe, a market of comparable size, it has over 160, accounting for more than 80% of its total turnover. In April IKEA opened its first store in Japan.

    If Stichting Ingka Foundation has net worth of at least $36 billion it would be the world's wealthiest charity. Its value easily exceeds the $26.9 billion shown in the latest published accounts of the Bill & Melinda Gates Foundation, which is commonly awarded that accolade.
    Measured by good works, however, the Gates Foundation wins hands down. It devotes most of its resources to curing the diseases of the world's poor. By contrast the Kamprad billions are dedicated to "innovation in the field of architectural and interior design".

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