edit: here is a picture of "luxury villa" in Switzerland: https://w.cdn-expressen.se/images/7d/e2/7de2bbfb59044fe6bfc3... Don't get me wrong it's a nice place and something for a reasonably successful doctor or lawyer to aspire to, but hardly screams "one of the 20 richest people in the world".
[0] The vineyard was technically owned the Ikea Foundation and not by him personally, and since the wine they produced there was sold at the restaurants at his stores the whole thing was probably considered a business expense for tax purposes. Because that was how he rolled
If what you say is true, his standard for living as a rich person seems exceptionally reasonable to me.
Maybe "Money doesn't motivate me" would be more accurate?
Technically the IKEA Foundation (www.ikeafoundation.org) is that charitable organisation. And technically they do donate a bunch of money each year to various causes. Of course they're not the most transparent of organizations so it's hard to really judge their philanthropic efforts.
Maybe "Money doesn't motivate me" would be more accurate?
At the risk of trying to psychoanalyses a man know very little about,I'd say that "personal wealth doesn't motivate me" is probably the most correct statement. He obviously cared very much about his businesses and making them as successful as possible, and as such probably cared deeply about money to the extent that they're the 'points' used to judge who's winning that game.
He most likely hated wasting money, whether that was on excessive expenses or taxes -- it makes no difference. The money is gone either way.
I have a friend whose grandfather built quite a large retail business (in the billions). He said his grandfather was the same, including the tax avoidance. Grew up poor, made it, and hated wasting money.
Only profits are taxed, not sales. So if you "reinvest everything" you are not going to pay taxes.
You can hire more people, buy other companies, rent more equipment, etc. The net result is that the company grows but has no profits. It doesn't work if it buys real-estate, for example, as that increases the company value and the owner then needs to pay for the increase of the value of the company. But then it's on the share value increase, and not in profits.
High taxes can incentive grow as spending money to grow it's less costly than to capitalize profits. That's why lowering taxes is seen as an opportunity to withdraw money and reduce investment.
There will always be some 'leakage' and taxes to be paid. Non-profits are generally exempt from all corporate taxes. If you don't care about putting profits in your pocket, they tend to be very tax efficient.
In the case of Ikea, a royalty on all sales (for use of the brand name) is paid to a low taxed for-profit entity. That's how he made his money. The larger the empire, the more royalties he gets, so the structure does make some sense. Not as perfect as running a pure for-profit entity, but probably one of the most tax efficient.
You don't start a business from the notion of funding the state.
I'm saying option a is better than option c) spend wastefully because you pay high taxes.
Your comment seemed to advocate for this third option.
I now understand your meaning to be "paying high taxes is not frugal" which I disagree with for other reasons. Specifically paying unnecessary taxes would not be frugal but a company can still be frugal and pay high tax rates. To put it another way I do not believe tax avoidance is a frugal necessity.
It's not necessary.. but probably a personally trait of frugal people. You reduce expenses.
You're absolutely right however that high taxes tend to incentivise reinvestment (so you can tax deduct). But too high taxes also deter entrepreneurship to some extent, because past a certain point a lot of people will feel they're working more for the state than for themselves.
I don't disagree with your second paragraph but I don't see how it relates to frugality.
If you legally find a way to reduce your liability to zero (i.e. like Kamprad did), then you're also being frugal? This obviously might not be entirely ethical, but it's extremely frugal. :)
There is a material difference between that and actively seeking loopholes that are not available to ordinary people. Ikea is only possible because of the physical and legal infrastructure paid for by those ordinary people after all.
Not that they will do anything of course, the Viking spirit is long dead.
"legally required to" does not incur a balancing test between what is practicable vs the time it takes. If you're a regular, mid-income citizen, then there isn't likely to be a good ROI on hiring a dedicated accountant to find you loopholes. If you're making $200k a year, and you save 10%, hooray, you've saved $20k through tax avoidance, but since a CPA's average salary is ~$60k, then you'll have lost $40k. Perhaps there's a middle ground where you could employ a CPA for a finite amount of time for them to find you the obvious savings, and many people do. It's how companies like H&R Block exist.
If your income is $2,000,000 a year, then it is cost effective to hire the guy who can save you 12% a year vs. the guy who can save you 10% a year, even if the 12% guy costs 10% more, because while 10% guy saves you $200k (e.g., worth the $60k salary), while the 12% guy saves you $240k. Even though his $66k salary is $6k more than the 10% guy, he's saved you $40k more, which nets out to an extra $34k.
Anyway, I'm rambling, but what I'm hoping to illustrate is that many, many Americans routinely engage in tax avoidance by hiring a tax accountant that finds them deductions. The fact that Ikea does the same is not cause for scorn. The fact that it is mathematically stupid for them not to do so does not mean that it is practical for you to do so. Everyone's situation varies.
Scorn or moral objections is not the same as legal. If 51% voted to take the land and property of the 1%, then that is a democratic decision and the publicly published law. It would also be overwhelming scorned by those effected. Should we just tell them that they too would redistribute the wealth if they could and its stupid for anyone to not take wealth if they could.
Tax avoidance is an illegal means of not paying the actual tax required.
What you and the others who have replied to your comment mean is "tax minimisation", which is legal and uses the specified tax code to minimise your tax burden.
What is often done in discussions about this subject is classifying legal tax minimisation processes as tax avoidance.
Tax minimisation is perfectly fine and quite moral. Tax avoidance is not fine and is often immoral, though not necessarily.
There is a second thing at play here though. As I have friends who have worked in one national taxation organisation, they have explained that the way the system works is that the taxing organisation has internal descriptions of what they will allow as legitimate deductions which are different to what the legislation might read. If you use the correct descriptions and terminology, they will allow your claim through with no challenge. But, if you do not use the correct description or terminology then they will challenge said deduction. Such descriptions are not publicly available.
That is why good tax accountants get those obtuse deductions for their clients.
The tax law is written so that every citizen (including corporate) is only required to pay the minimum amount required and not anything above that.
It seems curious that you'd start by defining terms and then define those terms incorrectly.
tax a·void·ance
taks əˈvoidns
noun
the arrangement of one's financial affairs to minimize tax
liability within the law.
The illegal act you're referring to is tax evasion.
> the taxing organisation has internal descriptions of what they will allow as legitimate deductions which are different to what the legislation might read
In America, the IRS is bound to the same laws as the citizenry, and while there may be some allowed discretion in interpretation, re-interpreting the law on their own is in fact illegal.
From the perspective of tax collectors, avoidance is evasion and not minimisation. Politicians also use the term "tax avoidance" as a synonym for "tax evasion" when it is useful to them.
Having friends who worked at various stages for various kinds of bureaucracies (including tax collection), they have spoken of the distinct terminology used and why it is used.
It is not a matter of re-interpreting the "tax law" but creating the appropriate internal definitions as to what that "tax law" means. The problem that people face is that legal definitions quite often do not match the general populous understanding of the words used.
We can always argue over whether or not "tax avoidance" is the same as "tax evasion" or "tax minimisation". The reality is that each of these terms has a definitive meaning dependent on who is using the term. Taxation collection organisations will have one set of meanings, politicians will have another, the general population will have another.
The only meanings that are relevant are what the taxation collection organisations assign to those terms in their internal working processes. I am using the definitions of those terms as shared to me by my friends in taxation.
One of the reasons for using tax accountants these days is that many years ago, I was audited by the relevant tax authority. The upshot was that they disallowed the claim in question and in my last conversation with the auditor, he made the comment that the deduction was allowable but he wasn't going to tell me how to claim it. I have used accountants since then. I let them deal with the complexity of the taxation law. A good accountant is worth the cost just to avoid having to deal with the "insanity" of current taxation regimes.
I don't have a problem with taxation per se, only with the insane level of complexity that has built up in modern times. When tax law goes from say 80 pages at the start to 30,000 + pages today, one has to ask why? YMMV.
Lastly, if in America, the IRS is bound by those same laws as the citizenry, why are the so many documented cases of the IRS "draining" the bank accounts of so many little people when nothing illegal has been done? The IRS has interpreted the law by their own internal definitions.
It still isn't. Some sources:
Wikipedia - https://en.wikipedia.org/wiki/Tax_avoidance
> Tax avoidance is the legal usage of the tax regime in a single territory to one's own advantage to reduce the amount of tax that is payable by means that are within the law.
Investopedia - https://www.investopedia.com/terms/t/tax_avoidance.asp
> Tax avoidance is the use of legal methods to modify an individual's financial situation to lower the amount of income tax owed. This is generally accomplished by claiming the permissible deductions and credits. This practice differs from tax evasion, which uses illegal methods, such as underreporting income to avoid paying taxes.
Dictionary.com - http://www.dictionary.com/browse/tax-avoidance
> reduction or minimization of tax liability by lawful methods
Collins Dictionary - https://www.collinsdictionary.com/dictionary/english/tax-avo...
> Tax avoidance is the use of legal methods to pay the smallest possible amount of tax.
Freedic Legal Dictionary - https://legal-dictionary.thefreedictionary.com/tax+avoidance
> The process whereby an individual plans his or her finances so as to apply all exemptions and deductions provided by tax laws to reduce taxable income.
> Through tax avoidance, an individual takes advantage of all legal opportunities to minimize his or her state or federal Income Tax, gift tax, or estate tax. An individual may, for example, avoid federal income tax by investing a large sum of money in municipal bonds, since the interest on such bonds is not considered taxable income on which federal tax is due. Interest on the same amount of money placed in a savings account must be included as taxable income.
> From the perspective of tax collectors, avoidance is evasion and not minimisation.
This is misleading. Either may trigger an audit if the internally expected discrepancy is greater than the actual discrepancy, but an audit isn't criminal, and it takes an assertion of fraud (a violation of the law, which does not fall within legal avoidance strategies) to go from audit to criminality.
> Politicians also use the term "tax avoidance" as a synonym for "tax evasion" when it is useful to them.
Possibly. Politicians do all sorts of stupid shit. That has zero bearing on the definition of words.
> The problem that people face is that legal definitions quite often do not match the general populous understanding of the words used.
Right, which is why tax agencies interpret the law into tax code that is distributed to the populace* as clear and transparent. In the event that there's a failure at reconciliation between legislative intent on a tax policy and the interpreted code, that can be changed legislatively, clarified during reconciliation, or fixed through a variety of other means. The IRS is not authorized to re-interpret tax law to mean things it doesn't say, and while there's a certain amount of interpretive leeway, as a citizen, you can sue where you disagree.
> We can always argue over whether or not "tax avoidance" is the same as "tax evasion" or "tax minimisation".
We can, but since there are clear lexical, legal and tax definitions for each, it seems a stupid hill to die on. If people insist on using the wrong words, that can't be helped, but that doesn't mean that the right words don't exist.
> I am using the definitions of those terms as shared to me by my friends in taxation.
Not that it should be considered canon, but I have friends that work at the IRS, the SEC, and at FINCEN. I reached out to them, and they all think that your friends are wrong. /shrug.
It's probably worth clarifying that when I refer to agencies here, I'm referring specifically to American agencies. I don't have any clue on how other countries internally represent their laws, and I make no assertions as to how they operate. I have no idea.
> Lastly, if in America, the IRS is bound by those same laws as the citizenry, why are the so many documented cases of the IRS "draining" the bank accounts of so many little people when nothing illegal has been done? The IRS has interpreted the law by their own internal definitions.
Well, they can't drain your account, but they can freeze your funds. As to the 'why', it's because there are laws that expressly authorize them to do so. The IRS has express legal authority to issue a bank levy to freeze accounts in the event of certain activities or suspicion of certain activities. Note that 'having legal authority' to do something does not connote to 'having extralegal authority' to do something. They are bound by the same laws that you and I are, and those laws authorize them to do something. While speaking practically, they might be able to freeze accounts for no reason at all, but they are breaking the law in doing so because they do not have legal authority to freeze accounts for funsies.
As far as IRS and draining of accounts is concerned, tell that to the poor people who have had their money confiscated from their accounts. Enough records of this occurring for you to track down. Little people usually don't have the resources to engage in the legal battles to regain their funds.
As far as your friends are concerned, their MMV.
Our differences are there and so be it. There are more important matters occurring at this time than this kind of discussion.
Fair thee well.
OTOH, it is rarely so simple, since many of the little people work for those companies. When your employer does this stuff, it is probably good for you.
Complete nonsense. Finding a loophole in the tax code is no different to finding a flaw in some computer code that gives you some access you were never intended to have. Should we all hire professional hackers too?
If McDonald's is selling a 10 piece McNuggets for $1.49, and a 20 piece for $4.99, then buying 2 x 10 piece McNuggets for $2.98 is a loophole around paying $4.99. If you find it immoral, so be it, but it doesn't change that you're paying more for McNuggets than McDonald's requires you to pay.
Don't fall for it.
It's not that complicated. If you are a business, don't sell stuff at a loss. If you want to sell stuff at a loss to drive traffic to your store, you're going to take a loss. Don't blame your customers.
The ordinary taxpayer isn’t in a position to exploit interactions between n jurisdictions tax codes, are they?
If you're not that rich then it doesn't make sense to go all out optimizing your taxes because the savings aren't big enough and the costs of doing so are high enough to make the net result a savings.
Not being rich enough to have access to certain tax avoiding structures is like complaining you not being able to get the savings of buying a ton of dish soap because you don't have a fork lift.
People avoid taxes all the time, it's just that 5% savings on an average income doesn't save millions of dollars and cause Twitter to hate them.
Personally, I take the mortgage interest deduction, claim my real dependents, and put as much into my 401K as is legally allowed. Those are all tax avoidance strategies that people routinely engage in.
But the former is not illegal while the latter most definitely is (unless it's your own software, etc.).
Loophole has negative connotations. But it really depends on many factors.
A prosperity gospel preacher buying a second LearJet tax free is not the same as a company hiring contractors to stay under 500 employees in order to retain some small-business benefit.
"It's just crazy, but somehow, accidentally, we passed this big tax law and hedge fund managers don't have to pay taxes! Oh well! I guess we can't ever fix it, either! Crazy accident!"
The second company, well if you take a minute to read this article it explains the price society pays for the second policy: https://www.nytimes.com/2017/09/03/upshot/to-understand-risi...
I'm not really defending the first example, but america has a bit too much "privatize profits, externalize losses" for my taste. These policies do have impacts on the life of the median american.
During the Nuremberg trials the Nazis that stood accused actually unsuccessfully tried to exploit what was essentially loop holes in international law.
The real problem is that the corporate tax shouldn't exist. It's too easy to fuck with and manipulate a profit tax by being creative with what counts as revenue and what counts as expense. And tax incidence studies have repeatedly shown that the burden of corporate taxes fall disproportionately on labor, not capital. The better idea would be to eliminate the corporate tax entirely, taking the world's entire corporate tax avoidance scheme with it, and instead tax personal income, dividends, and capital gains at higher rates. It would actually be more progressive and far less avoidable, and mountains less complex.
https://www.vox.com/policy-and-politics/2017/11/7/16618038/h...
Companies utilising those structures aren't the problem. It's governments creating the opportunities. Same as with tax incentives for investments. You can't blame a company using tax incentives but you can blame the state/city/region that they created them.
Also keep in mind that IKEA still generates significant tax revenues in employment tax, sales tax, property tax, etc. In the US the property tax is what pays for the physical infrastructure you speak of.
Yeah, no, it happens all the time.
Church of Satan uses Religious Freedom law against anti-abortion legislation.
https://www.cnbc.com/2018/01/25/satanists-say-missouris-abor...
The Bill of Rights has invalidated or modified laws in hundreds of legal cases. In none of those cases has it been considered the action of a loophole.
If one is going to judge a client's morality by his eagerness to spend more money than his tax bill in order to avoid paying that bill, that same moral lens needs to be applied to the accountant knowingly charging his client more than the client would save in taxes.
Giving that money to your accountant on one hand side you avoid funding the military, on the other you avoid funding things like NOAA, NAA, VA, food safety, and many others.
The impact the NOAA, VA, etc has on a local community of 100,000 is, barring a local employment center, 100,000/330,000,000*$51,000. It's not even close how much more of an impact paying your taxes to your local accountant instead of the government would have on where you live.
He probably thought that the money would be better spent for the good of society by private institutions than by the government.
This isn't empty rhetoric. Most countries extract tax as x% of turnover plus y% of dividend plus many smaller taxes. Kamprad structured his company to pay its "owner" nothing, which leaves VAT and the smaller taxes, and apparently the structure prevented his heirs from ever getting any financial benefit from Ikea.
Forgoing an income foregoes income tax. I'm asking you whether that's fair. Can someone like Kamprad decide that neither he nor the state should get any financial benefit from Ikea?
Eventually the money is spent on something, and will be taxed then.
> The Law of Jante is the description of a pattern of group behaviour towards individuals within Nordic countries that negatively portrays and criticises individual success and achievement as unworthy and inappropriate. (...) Used generally in colloquial speech in the Nordic countries as a sociological term to describe a condescending attitude towards individuality and success, the term refers to a mentality that diminishes individual effort and places all emphasis on the collective, while simultaneously denigrating those who try to stand out as individual achievers.
https://en.wikipedia.org/wiki/Law_of_Jante
(It should be noted that these days, Jantelagen as petty as described here does not really apply so much to urban Scandinavian culture, but rural areas can still be very much like this)
Kamprad grew up on a farm in a small village in the 1930s, so we can be fairly certain that this attitude was part of the social values that he grew up with. That is enough to explain why Kamprad did not show off wealth: it would be considered offensive back home.
It is also easy to imagine how one can consider cheapness a positive character trait with this mindset. So I am inclined to believe that Kamprad sincerely did not care about money despite his billions, at least not in the "American" sense.
Jantelagen may also be part of why back in the seventies, Scandinavia was one of the earliest places to embrace principles of Participatory Design: design done together with the people being designed for[0]. Interestingly, in that same period Kamprad wrote "The Testament of a Furniture Dealer"[1]. It does a lot to explain how from the Kamprad/IKEA perspective, being a force of good in the world for the have-nots is not at odds with making tons of money. It reads like political manifesto, except written by someone who can only see the world from the point of view of furniture business. I suppose it kind of is. Just look at the opening paragraphs:
> To create a better everyday life for the many people 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. We have decided once and for all to side with the many. What is good for our customers is also, in the long run, good for us. This is an objective that carries obligations.
> All nations and societies in both the East and West spend a disproportionate amount of their resources on satisfying a minority of the population. In our line of business, for example, far too many of the fine designs and new ideas are reserved for a small circle of the affluent. That situation has influenced the formulation of our objectives.
> After only a couple of decades, we have achieved good results. A well-known Swedish industrialist-politician has said that IKEA has meant more for the process of democratisation than many political measures put together. We believe, too, that our actions have inspired many of our colleagues to work along the same lines.
> But we have great ambitions. We know that we can be a beneficial influence on practically all markets. We know that in the future we will be able to make a valuable contribution to the process of democratisation outside our own homeland too. We know that larger production runs give us new advantages on our home ground, as well as more markets to spread our risks over. That is why it is our duty to expand.
So how did Kamprad reconcile being successful and making tons of money on the one hand, with social values "that diminish individual effort and places all emphasis on the collective" on the other? Beyond his own frugality, he oriented his ambitions towards producing for the collective. Note that this is not a self-evident business model! Plenty of businesses maximise the perceived value of their products through the idea of exclusivity (supercars and wrist-watches come to mind). When is the last time you saw that attitude applied to an IKEA product? Nobody brags about having a Lack table at home. You know what does fit the IKEA ethos? The Lack Rack, and IKEA hackers[2][3].
As far as I can tell, the internal culture of IKEA reflects this as well. I am originally from the Netherlands, but studied a master in Interaction Design in Malmö University, and have been living in Sweden for five years in total. A number of the people that I studied with ended up working for IKEA. Through them I get the impression that they truly believe in "the cause" of making affordable designs for everyone. You can also see it in IKEA's approach to sustainability[4].
Anyway, the point is that for Kamprad, maximising profits for a successful business, and this business working for the benefit of everyone was not at odds. Keep that in mind and a lot of things about IKEA start making a lot more sense.
As for the IKEA foundation, yeah, it's pretty shady. It would be interesting to look beyond the tax-evasion construction and see how guilty IKEA is of other dubious business practices like externalising costs - that is, whether or not these other practices were as easy to reconcile with a frugal mindset.
[0] https://en.wikipedia.org/wiki/Participatory_design#History_i...
[1] http://www.ikea.com/ms/en_US/pdf/reports-downloads/the-testa...
[2] https://wiki.eth0.nl/index.php/LackRack
[3] https://www.ikeahackers.net/
[4] https://www.greenbiz.com/article/ikea-argues-businesses-go-a...
The richest man in Norway Olav Thon, has very similar behavior to Kamprad. He drives an old car, doesn't wear particularly fancy clothes. For him it seems more about the game. He loves the game of doing business and winning. It is not what you can do with money personally that matters.
Younger Scandinavian billionaires seem more into spending their money though. The American lifestyle and values are definitely spreading.
> For him it seems more about the game. He loves the game of doing business and winning. It is not what you can do with money personally that matters.
Apparently, one of Kamprad's motto's was that happiness is not reaching the goal, but the journey itself. I suspect that almost all people who are outliers in their field (be that businesspeople, top athletes, anything) share this attitude. Becoming rich is an external motivation. Enjoying "the game" itself is an intrinsic one. When it comes to getting people to move mountains, the latter works much better.
(For those who cannot/will not view it, he gets a bit upset when the cashier tries to charge him for the coffee, despite that it should be included in the lunch.)
This is pre-capitalism, feudalism.
Besides, "late-stage capitalism" is a meaningless buzzword.
Edit: Wikipedia says:
> Kamprad owned a villa in Switzerland, a large country estate in Sweden and a vineyard in Provence, France.
I can't guarantee the prices, but those things should be in the multi-million Euro range. Not quite rapper expenses, but definitely not middle class either.
I mean it's really nice house and apparently comes with a very big garden and beautiful view of the lake, but it's hardly opulent. In a different, cheaper, part of the world a house like that would definitely be within the reach of at least someone earning a decent upper middle class salary.
edit: Here is his "large country estate" in Sweden: https://x.cdn-expressen.se/images/ae/fc/aefca41095674fdcaf01...
Key words :)
Real estate is 90% "location, location, location".
And even with it's perfect location it's apparently still 'only' a ~4 million eur. house. It's not even one of the 10 most expensive houses in town. Hell there are 10 more expensive houses for sale around there on homegate.ch right now.
Late stage capitalism...
Anyway, I don't really get why the article claims he didn't care about money. It's known for a while that IKEA avoids taxes in many dodgy ways. If he really didn't care, the connected companies could pay a reasonable amount.