Probe centres around two Dutch rulings that EC believes may have given IKEA "an unfair advantage over other companies, in breach of EU State aid rules".
Competition commissioner Margrethe Vestager said in a statement: "All companies, big or small, multinational or not, should pay their fair share of tax". "Member States cannot allow some companies to pay fewer taxes by artificially relocating profits elsewhere can".
The European Commission is to open an in-depth investigation into Ikea's corporate tax structure.
In a statement, the regulator said that Dutch tax rulings in 2006 and 2011 appear to have reduced Ikea's tax payments in the country.
Ikea in a statement insisted that its tax deals in the Netherlands did not breach European Union laws.
Ikea claimed that it complied with all tax regulations and would gladly cooperate with regulators.
A senior Dutch EU official said it would look at the details of the case.
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The "in-depth" investigation into IKEA's tax dealings comes as part of the EU's push against the favorable taxation cuts being given by its member states to large corporations to ensure the steady flow of jobs and investment.
Inter IKEA Systems in the Netherlands records all revenue from IKEA franchise fees worldwide collected from the IKEA shops. That ruling endorsed a model that allowed Inter Ikea to send a significant portion of its franchise profit, via interest paid under an intercompany loan, to a Liechtenstein company. No illegal aid needed to be recovered from I.I. Holding because the scheme was granted under a Luxembourg law from 1929, predating the EC Treaty.
Monday's news might prove an embarrassment for European Commission President Jean-Claude Juncker, theprime minister of Luxembourg at the time the tax deals were made. Ikea has two separate corporate groups with various establishments in the Netherlands, Luxembourg and Liechtenstein.
Your local High Street furniture store has enough trouble competing with the likes of Ikea, with its massive stores, name recognition, buying power and marketing budget, without Ikea also having access to tax breaks that it could never use. However, IKEA then restructured its businesses.
The European Commission is not so much anxious about different countries in the European Union having different tax policies, in fact considering it is supposed to be one, seamless market, there are a whole range of company tax rates and policies across the EU.
A probe into Ikea, whose 2016 turnover was some €35 billion, may lift some criticism Mrs Vestager has received for probing major American companies, including Apple, Starbucks, Amazon and McDonald's.