XXXLutz Under Fire: Tax Evasion or Smart Planning in Malta?

The Austrian furniture giant XXXLutz is currently under fire. They are reportedly routing their licensing business through a Malta company, and accusations of tax evasion are getting louder. But are these accusations fair? Or are the people in charge simply being targeted for doing something completely legal?

XXXLutz: One of Europe's Fastest-Growing Companies

First, let's look at the data. XXXLutz is the highest-turnover furniture chain in Austria, employing around 18,500 people. Back in 2009, their turnover hit nearly €2 billion, making them the second-largest company in the sector worldwide, right behind IKEA. They are easily one of the top 20 fastest-growing companies in Europe, and their recent expansion into Sweden suggests they aren't slowing down anytime soon.

Malta Company Manages Licensing Rights

Here is where the tax structure comes in. A company based here in Malta manages the licensing business for the group, with a total volume of around €341 million. When you handle business of that magnitude through a corporate structure in a jurisdiction like Malta, the savings are massive.

For my analysis, I compared the corporate tax rates: Austria sits at 25%, while Malta offers an effective tax rate of 5% (though the standard rate is 35%). The spread between those two numbers shows exactly why a company would do this.

Is XXXLutz Using Legal Tax Incentives?

So, did the company break the law? In my opinion—and the view of my partners at DW&P Dr. Werner & Partners—the answer is no. Spinning off parts of a company or selling rights to a foreign entity is not illegal. The real question is: where should the profits be taxed?

Since the company holding the licenses is physically located in Malta, and the management is based here, everything appears to be above board. The company's finance department simply utilized the generous tax incentives offered by the Maltese government, which is perfectly legal under EU law.

New Laws Planned, But Will They Work?

The debate heated up in Austria largely because the SPÖ party expressed outrage and is pushing for legal changes. But is it that simple?

The proposed Austrian draft law intends to tax license, patent, and interest payments if the receiving country taxes them at a rate below 10%. At first glance, this looks like it would kill the attractiveness of the Malta structure. However, there is a catch.

The standard corporate tax rate in Malta is actually 35%. The effective 5% rate is achieved through a tax refund paid to the shareholder after the tax is paid. This means the licensing business is technically taxed at the full 35% initially. It is highly likely that there is a holding company behind the licensing entity that benefits from the 6/7th tax refund.

Because of this specific mechanism—using a holding structure—I believe the scope of the proposed law won't be sufficient to catch this. The company can likely continue to save taxes legally because Malta's official rate is well above the 10% threshold. We will have to wait and see the final wording of the law, but for now, the structure seems robust.