How IKEA is structured to minimize tax and maximize control
economist.com
economist.com
Am I the only one that enjoy assembling flat-pack furniture and believe it is extremely easy?.
Which extends to - I can't understand how to put simple bits of engineering together because I'm so spiritual!
Seriously, when I opened that box, all I got was a bunch of pieces of wood and a bag full of screws.
Meanwhile, my bed was bought from Ikea and it took only an hour and a half.
Also, have you ever tried to hang a pair of doors straight? Their hinges have like 9 degrees of freedom, which doesn't really help. Plus I don't think it is actually possible on this TV cabinet I have, since it isn't actually square once you put a TV on it.
> In an email from Ikea sent to the TT news agency, Kamprad admits that the Interogo Foundation in Liechtenstein exists and that it owns Inter Ikea Holding SA, which in turn owns Inter Ikea.
"Interogo Foundation is a company foundation whose only goal is to invest in the expansion of the company business and secure its long-term survival. In other words, the assets of the Interogo Foundation are held as financial security and are only used if Inter Ikea has financial difficulties," wrote Kamprad.
"The assets can also be used to support individual Ikea dealers who have financial difficulties or for philanthropic purposes. Interogo Foundation is controlled by my family and is administered by a board of directors consisting only of outside representatives." he added.
[1] Source: http://www.bloomberg.com/news/2010-10-21/google-2-4-rate-sho...
The only thing unethical about it is that these tax avoidance schemes have inherit economies of scale - startups can't afford the advice.
The solution is not to eliminate the tax paradises (which would cause a revolution btw), but to eliminate the tax code altogether.
If your ideology insists on coercion than at least make it a flat rate.
Edit: I get accused of supporting corporatism below. I don't. I just support anyone to avoid taxes as much as possible and oppose all forms of collectivism.
Please take into account when making such statements the US (or whereever you live) is not the world. And just because you got brainwashed after decades of conservative government doesn't mean the rest of the world is. But the rest of the world also participates in this community.
The guy's not a rapist or a neo-Nazi, he's just not a socialist. Get over yourself.
I'm gonna set my noprocrast to 87000 minutes now and come back in two months.
Or is that he fault of the majority who is so sensitive it cannot tolerate a minority that doesn't agree absolutely completely?
Just as humanity doesn't need a forced state religion to be religious, humanity doesn't need a forced tax system to be social.
Please consider this view point. Don't confuse personal ethics and political morality.
Personally, I prefer the term "Abolitionist" to "anarcho-capitalist." I'm an abolitionist because, just like the movement of old, I endorse the abolition of slavery. Governments consider people property (the US taxes worldwide income) and believes it owns the output of said property.
The downvotes are OK though. People feel very strongly about certain ideas for society and mistake freedom for critique on the idea instead of just on the method (coercion).
For some reason parts of the world got over religious coercion. One day we'll hopefully have the same for ideological coercion.
Do you have any good (online) literature for your position? It seems to me that having money/bartering implies a government no matter how you slice it. I can see potential with some anarchical systems, just not primitivism or ancap.
A large part of the Austrian school of economics is also ancap. A great overview of the insights today can be found in "Libertarianism today" by Jacob Huebert. [2]
[1] www.voluntaryistpunk.com/ebooks/The_Machinery_of_Freedom_.pdf [2] http://mises.org/store/Libertarianism-Today-P10394.aspx
Edit: You talked about money in a free market. For that topic I recommend "What has government done to our money?" by Murray Rothbard. [3]
[3] mises.org/books/whathasgovernmentdone.pdf
To tell him not to participate here because he thinks differently than you is to say that your mind is not open to new ideas and that you cannot bear to be exposed to anything that comes from a different philosophical basis than the one upon which you were raised.
Can you see how that is anti-intellectual?
[edited to fixed a typo: "the" => "they"]
So, the super rich would indeed pay a smaller percentage of their income, only if they spend the same as an ordinary consumer, but they would pay much more tax (e.g. 60% after 1 million) if they spend everything they earn.
This would encourage them not to swap pieces of paper for real goods. It would make them have more money in the bank but less million dollar cars and yachts. The productivity saved from not producing those non-producing consumer goods can be used, e.g., on farming, so that food becomes cheaper for the general populace.
This plan would see the rich hording money, rather than spending it on luxuries. The kind of luxuries that are produced by western economies. When the rich spend their money on frivolous luxuries, it helps redistribute their wealth to the workers producing those luxuries.
To take an example to the extreme, it would be wasteful if Warren Buffet hired 10,000 painters to paint a portrait of himself everyday. The GDP would go up, but it wastes effort, effort that can be allocated more efficiently. (Using his own example here)
I've heard this argument before, and this is going to sound pedantic, so I apologize, but just exactly how rich can you be if you don't spend your money on things?
Or, put a different way, the rich only (bother us/owe more/are easy targets/need to pay up) because a) they don't have to work to live, and b) they buy and own cool stuff we want.
Obviously being able to live without working is a goal for everybody, so I'm tossing that out. What I'm left with is that we identify rich people by the stuff they buy or own. Without that, you wouldn't really have rich people -- or if you had them, as far as their participation in society they would be just the same as anybody else. They'd be invisible -- both in their appearance and in their stress on the social fabric.
So if you want to sack the rich, do it by taxing the things that we identify with being rich -- buying and owning stuff. That way -- poof! -- there are instantly less rich people in the world, and you've created a stable societal goal for people to strive for which kind of boils down to "make as much money as you need to not work" which is a laudable goal for every society, I would think. Right?
Not trying to argue, just thinking out loud. I've spent some time thinking about this, and I think a consumption tax could be supported by folks no matter what their political philosophy or party. The idea is inherently less political than an income tax. Of course, we'll all get hung up on whether it should be progressive or not, but hey -- baby steps.
As for why we want to soak the rich, it's clearly not (a) - most poor people work very little (by choice).
[1] Note: this is not my opinion on Android (I hate Steve Job's walled garden, and am very happy with my N1), but it is the opinion of several lower class people I know.
Keep in mind that rich people also have more of a vested interest in maintaining the system, so it's not entirely unfair to them, either.
Most government spending is simply taking money from some people and giving it to other people. This is explicitly not in the interests of the rich.
[1]Pareto-inspired made-up-statistic
This is categorically untrue. Social welfare and wealth redistribution, from the perspective of the rich, are a concession to the poorer classes in the interest of pacifying them and preventing a violent leftist uprising. Of course, this has to be done through the government rather than voluntarily because, for game-theoretic reasons, it can't be done voluntarily.
Of course, if the poor are truly as evil and dangerous as you say, wouldn't it be better just to wall them off from the rest of us? For the cost of welfare, we could triple the money we spend on the police.
You're right, and there other self-interested motivations for rich people to support social welfare, including hedging against future misfortune, support of friends and loved ones who may not be as well off and who would be more expensive to support on an individual basis, and the fact that end-of-life health care is often expensive enough to matter even to the significantly wealthy.
Of course, if the poor are truly as evil and dangerous as you say, wouldn't it be better just to wall them off from the rest of us?
Where did I say the poor are evil? I'm accounting for self-interest, not making a moral argument.
Oppressing the poor in order to keep them from rising up against the ruling class has never worked. Taking care of the poor in order to prevent them from even wanting to rise up against the ruling class consistently works.
This isn't even a new idea. I ripped it off from Bismarck, who, "working closely with big industry and aiming to head off the Socialists, implemented the world's first welfare state in the 1880s." http://en.wikipedia.org/wiki/Otto_von_Bismarck#Bismarck.27s_...
As notahacker points out, a lot of this stuff is also a side effect of having a democracy. Having a democracy is perhaps an even better hedge against violent uprisings.
If that were true, there would be no need for force. We could make SS/medicare an opt-in scheme.
Where did I say the poor are evil?
If the poor will use violence unless they receive tribute, they are evil.
Oppressing the poor in order to keep them from rising up against the ruling class has never worked.
I'm only advocating separation. If the poor truly are dangerously violent, lets wall them off from the rest of us. A fence is pretty easy to police.
Oppression is only necessary if you need the labor output of the poor, which we manage to survive just fine without (in the US, the vast majority of the poor don't work at all).
No, you couldn't. For game-theoretic reasons, it has to be mandatory to work.
If the poor will use violence unless they receive tribute, they are evil.
Again, I'm not making a moral argument at all. It's your own moral judgment to tar hungry people as "evil" for rising up against a wealthy ruling class--and expressing sentiments like that, quite frankly, reveals far more about you than about me.
If the poor truly are dangerously violent, lets wall them off from the rest of us. A fence is pretty easy to police. Oppression is only necessary if you need the labor output of the poor, which we manage to survive just fine without (in the US, the vast majority of the poor don't work at all).
The poor aren't "dangerously violent" unless they starve or otherwise slip into absolute destitution, at which point they will try and take what they can get from the rich. The entire history of violent revolution bears this out.
And I think you're misunderstanding this. I'm talking about the distinction between the richest 5% of society and the other 95%. Because that's roughly how the original problem--progressive taxation--is meant to break down anyway. And if you add up things like Medicare, Social Security benefits, and unemployment insurance--frankly, there's a lot of legitimate need for those things, even among working and middle class populations.
Helps big companies and the politically-connected... hurts upstarts and people who focus on business not politicking.
Makes people angry at tax distortions, not taxes themselves.
So this sort of gaming doesn't advance your hopes at all.
You'll have better luck with fair, broadly-based taxes, and structural protections against constant tinkering with both the progressivity and exceptions. Then we could have a rational discussion about the overall level of taxation, or possible replacements for taxation, without the distracting class-warfare and favor-trading sideshows that dominate tax policy in conventional shallow politics.
exactly
Q: Why can't I set up my family's income as a charity? I'll give away 1% of earnings.
A: Because I can't afford lawyers, politicians and accountants to protect me when the government threatens to put me in jail.
Makes your furniture cheaper... and your taxes higher.
The flexibility that success stories have to move around and chase better taxation rates makes taxation lower for the rest of us. The barbarians in the capital know that if they make conditions too unnice, the successful people will up and leave. The rest of us are free-loaders on the desire of countries to attract those groups.
If Sweden or Europe changed things to crack down on Ikea, they could move plenty of their operation to Singapore.
You'll have better luck with fair, broadly-based taxes
But it doesn't work like that. We, as a society, don't let individuals or organizations decide what's best. We vote in a government who (in theory) decide the rules that apply to everyone, then they tax and spend accordingly.
I know it doesn't work like that, which is why you get situations like this (or like Bono campaigning for higher government spending, while squirreling his own money away where it can't be taxed). Hell, I reckon that a better use of my taxes would be supporting the luxury goods industry which is suffering during the recession, but I don't get to cancel my income tax and spend it on champagne and caviar instead...
Government won't lower taxes on the middle class if they find a way to tax the rich. They'd just increase taxes on the rich and keep on taxing the middle class as before.
Tax levels are just a product of a) how much there is to take and b) how tax inelastic the subject is.
We can't, we don't have the information or the power. Instead we elect officials that do have the information and give them the power. This applies to all situations in which I simply don't have the perspective to make the decision, including taxes. Do I think the tax system is screwed up? Sure. Do I think that eliminating it will fix the problem? Nope, but hopefully I can elect people who will fix the problem.
I don't get how people want to put more power in the hands of private organizations instead of one they at least ostensibly control.
In other words, your argument is that a monopoly in a certain service, given the power to force customers into what it wants at the price it wants, will care more about you than a private entrepreneur just because they have to keep elections once every 4 years...
The reality is that elections are just forward actions of future loot, where politicians buy votes by promising goodies to certain people at the expense of others. Laws that benefit a special interest in a huge way but cost every tax payer a dollar or 2 always pass. Democracy is divide and conquer on steroids.
You also give an example of a negative externality. That's what courts are for. All the law principles that help solve externalities efficiently (habeus corpus, compensating the victim instead of the state) were the result of free competition in common law merchant courts. Again, if the government cares so much about you, why is the murderer of your family member now doing cheap labor in prison for the state rather than for you to compensate the loss?
You know, I wish life were as easy as just coming alltogether, wishing for a better life and giving a TED talk about it. It just isn't. You need to stop looking at intentions and start looking at incentives.
A private entity does not answer to the public, not truly if there is no information. If they act in way that is unethical or undesirable, they simply hide it from the public. With no reliable information flow (forget for a moment the Internet would not exist in your governmentless world), there is no way of controlling these entities. It sounds peculiarly like feudalism.
No. The system is not perfect, but it is a system we control. It's a system that enables information exchange, money, regulation and the equitable standard of living that has ever existed in the history of the world. Not too bad.
How is that working out for you? Or rather, when has it worked?
Here in the UK at least I found IKEA to be about 10-15% more expensive to local furniture stores. And about on par (about 2-5% more expensive) with national chains.
I'm in the process of kitting out my new house and, to take an example of a book case; this is the sort of think I am after: http://www.ikea.com/gb/en/catalog/products/S99823013
- IKEA: £160
- Homebase: (2 or 3 units together to make that design) £140
- Local Furniture Store: £130 - £150
- Second Hand: £100 ish
- Self Build: about £85 plus my labour (plus; leaps and bounds better quality)
Off topic note; it's currently half built :D because it's a no brainer really to have built it myself once I sorted out the costings. Highly recommend building custom furniture if you have a bit of practical skill - next up is a decent desk (cost of £200 down to under £100 with self build)
Simply looking at the final product and comparing the price ignores a lot of what makes IKEA what it is, and what they provide.
Self build, sure, there is a labour "cost" - but you're looking at a couple of weekends max construction, so if you have the interest it's no biggie :) I only included it because I thought it would be interesting to encourage people to consider it as an option.
IKEA was founded on solving that exact problem.
That being said, I wish I had the room to do my own wood work. One day, one day. =)
You are right; IKEA sell cheap. And they also sell convenience - and market economics means that cheaply convenient is more expensive than cheaply awkward.
So, basic requirements for a bookshelf are:
- Decent power drill/screwdriver (the battery type)
- Tenon Saw (the sort that is fixed with a metal bar to the top for straight cuts)
- Set square
Upfront you're looking at £40-£55, probably, for adequate tools. However I consider it reasonable that anyone practically minded will have some of these anyway (I bought myself a set when I bought my house last year and they have already proved their worth :)).
The main part of the project is careful design, figuring out the exact dimensions of the pieces you need (sketchup is good for this, or graph paper). Then you can go to the nearest hardware store (I live in a medium sized town and we have at least 5 places I can go to) who will provide the wood cut to length for you.
The only real sawing you need to do is fiddly bits - for example I have to fit mine around skirting board at one point, so need a notch.
In terms of construction, that's fair easy. Wood is really forgiving to work with as long as you are sensible about it :) my design is very simple. I have a piece of wood for the base, with the sides going up to the roof - they are secured top and bottom for rigidity. On both sides I have batons secured horizontally at the intervals I want my shelves, then each shelf just sits on that.
If you get nice thick wood (18mm or more) and don't make the shelf length too long (i.e. about about 80cm) that will work great!
Pre-drill holes first - make sure you use a wood bit substantially smaller than your screw - and make sure you have decent wood screws of the right length.
Bookshelves are pretty simple once you have pieces of wood the right length. Cutting yourself will make it harder, but not impossible :)
EDIT: everything is 90 degree angles, which simplifies things a lot. I'm currently working on a plan for my desk which involves Z shaped legs :) cutting the angles on that will be fun!
Making furniture is wildly rewarding; particularly for me as my dad is pretty practical in terms of DIY so it's some common ground for us!
Even if its not the case (at least not entirely) then you can still argue that the fact that IKEA is doing this is anti-competitive, which is surely against your ideology of anti-collectivism because it distorts natural market forces.
Even someone adamantly in the Chicago school of economics would be against a scheme like this because it implies that IKEA is effectively able to compete under markedly different market conditions than its competitors.
I personally prefer the economist article. I read it back in 06 and I've read a few more on the Ikea tax setup since then. It seems to still accurately represent the situation, some numbers might be out of date but the gist is the same. That ft.com article is a bit sparse, seemingly written as an update for people already aware of the issue, and as you say paywalled.
Thanks for the additional and up to date info though.
As an example:
Suez Tractebel, Energy Europe Invest en GDF Suez CC had a profit before tax : 4,8 bilion euro.
Together they payed 2,3 milion euro tax. This is a tax rate of 0,049%.
Oh these are the Gas & electricity companies in Belgium.
http://en.wikipedia.org/wiki/Howard_Hughes_Medical_Institute
Another example of a business built in part on a tax loophole--Amazon.com and its online brethren whose customers generally don't pay sales tax. That's a huge, unfair retail advantage compared to Barnes & Noble and other brick-and-mortar stores, especially since retail margins are generally so thin.
[http://wgbhradio.org/News/Articles/2011/1/29/For_Many_Compan...]
I'm not saying IKEA doesn't have the same retail financial prowess with state regulators, but let's be fair, many corporations do what they can to get tax loopholes. Accenture, a global consulting powerhouse was incorporated in Bermuda strictly to avoid paying taxes on billions of dollars.
http://www.businessweek.com/magazine/content/10_44/b42010431...
Ireland, good find, hopefully the gov't can get more into their pot of gold :P
In any case, I'm certainly not arguing for Walmart. I'm merely pointing out that these tax avoidance schemes lead to unfair competition when not all players have access to the same schemes. It should be a level regulatory environment for everyone.
edit: I got it wrong. There's the "Double Irish" and the "Dutch Sandwich".
Say you have Actual Company, Inc (ACI). ACI can't have more than 500 shareholders or it must go public.
So instead ACI issues only 500 shares. 250, say, are kept by the 2 founders. The other 250 are divided up as the sole assets of 250 other companies (ACI Holdings Number 1, ACI Holdings Number 2 etc), each issuing 500 shares.
This means that in one sense, ACI has only 252 shareholders. In another sense, it has up to 125,000 owners.
I believe Goldman Sachs used something like this tactic for the recent Facebook deal.
Some partnerships go one step further and become Swiss "vereins". Sort of somewhere between an unincorporated association and a legal partnership.
Ugh. You correctly note that tax avoidance is an unfair advantage but list among your victims some of the biggest companies in the world. Do you think Walmart is at a disadvantage? They almost certainly avoid more taxes than IKEA (if nothing else, because they make a lot more money).
When Adam Smith wrote about "the invisible" hand, he noted that it would only work if companies weren't allowed to grow too large. Once a company gets big enough it no longer has to participate in the market. Massive tax avoidance is just one of the many ways that companies like Walmart can use their size and power to keep small players out.
Citation? I've read most of Wealth of Nations, and I recall Smith spending a lot of time on monopolies - where the monopoly can constantly undersupply the natural demand, and charge premiums because of it.
But I didn't recall anything about companies becoming too large... in fact, he wrote famous defenses of companies like East India importing, so long as they didn't receive exclusive (monopoly) trade rights. That was one of the larger companies of the day.
But Smith wrote a lot, so I might've missed it. Cite?
>he wrote famous defenses of companies like East India importing
Sounds wrong to me. There is some discussion of it here: http://adamsmithslostlegacy.blogspot.com/2011/01/claims-for-...
"Also chartered companies were well known as witnessed by Adam Smith’s negative assessment of chartered companies in general and the East India Company in particular, contained in the Wealth of Nations."
American citizens don't have the same affordances as foreign nationals when it comes to tax minimization. If these foundations for Ikea were majority owned by Americans, they would be subject to taxation by the IRS, regardless of in which country they were created.