The European Commission has launched an in-depth investigation into Nike and the potentially illegal tax breaks the US multinational has received in the Netherlands.
According to the European Commission, Nike has benefited from special tax schemes that have allowed the American sporting goods giant to establish corporate structures while illegally reducing its tax liability in the country.
More specifically, as explained by the European Commission, this investigation will focus on Nike European Operations Netherlands BV and Converse Netherlands BV, two Nike divisions that primarily “develop, market and record the sales of Nike and Converse products in Europe, the Middle East and Africa.”
The European Commission claims these two companies acquired intellectual property rights licenses from two other Dutch Nike companies in exchange for “a tax-deductible royalty payment.”
The amount of royalties to be paid by the companies in question was determined by Dutch tax authorities via a series of tax rulings issued between 2006 and 2015.
As a result of these rulings, the two companies “are only taxed in the Netherlands on a limited operating margin based on sales.”
Source: European Commission
Now, the European Commission believes “the royalty payments endorsed by the rulings may not reflect economic reality” and “appear to be higher than what independent companies negotiating on market terms would have agreed between themselves in accordance with the arm's length principle.”
In a press release issued on Thursday, January 10, the Commission’s Head of Competition Policy, Margrethe Vestager, said, “Member States should not allow companies to set up complex structures that unduly reduce their taxable profits and give them an unfair advantage over competitors.
She added: “The Commission will investigate carefully the tax treatment of Nike in the Netherlands, to assess whether it is in line with EU State aid rules. At the same time, I welcome the actions taken by the Netherlands to reform their corporate taxation rules and to help ensure that companies will operate on a level playing field in the EU.”
This investigation follows information revealed as part of last year’s Paradise Papers disclosure.
A spokesperson said the European Commission was aware of these Dutch tax rulings prior to the Paradise Papers but “intensified its investigation” as a result of the leak, requesting “additional information from the Netherlands.”
This, in turn, “led to the doubts the commission is expressing” in its decision to open the investigation into Nike’s operations in the Netherlands.
Nike & Dutch Finance Authorities Respond to European Commission
A Nike spokesperson said, “We believe the European Commission’s investigation is without merit,” and assured that the American multinational complies with the same regulations as all other firms in the Netherlands.
In a statement, the Dutch Ministry of Finance said, “This does not mean that the commission has already reached a verdict, but merely that they have doubts whether or not there was state aid. Of course we will fully support the work of the commission.”
Furthermore, the Ministry said, the rulings issued “do nothing else than give certainty in advance on the application of tax laws, and should not lead to preferential treatment.”
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