Nike’s Dutch tax status investigated by EU Commission

The European Commission has launched an investigation into whether Nike benefited from sweetheart tax arrangements in the Netherlands that breached EU curbs on state support.

The investigation relates to five Dutch tax rulings on a group of companies Nike uses to develop, market and record sales for its products in Europe, the Middle East and Africa.

Margrethe Vestager, the EU's competition commissioner, said on Thursday: "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."

Under EU state aid rules, the European Commission has the power to require the Netherlands to recoup any illegal state support that Nike has benefited from since 2009. The move is the latest in a series of probes into unlawful tax arrangements, which have caught out companies including Apple, Starbucks, Amazon, Fiat and Engie.

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The commission’s concerns focus on the method used to calculate royalty payments within the Nike corporate structure, which was endorsed by the Netherlands in the tax rulings. Two of the decisions remain in force today.

Nike European Operations Netherlands and Converse Netherlands hold licences on the rights to sell group products in Europe, but pay a royalty for the rights to two other Nike group companies that are “transparent” for tax purposes.

As a result, the two companies handling sales and development, which employ more than 1,000 people, are only taxed in the Netherlands “on a limited operating margin based on sales”, according to the commission.

‘No employees’

Meanwhile, the Nike group companies receiving royalties “have no employees and do not carry out any economic activity”.

The commission added in its statement: “At this stage, the commission is concerned that the royalty payments endorsed by the rulings may not reflect economic reality. They appear to be higher than what independent companies negotiating on market terms would have agreed between themselves.”

The commission’s case, which turns on Dutch authorities accepting an “unduly reduced” estimate of the taxable income, has echoes of the investigation it launched against Apple and the Republic, which resulted in the US tech group paying €14.3 billion in back taxes. That case is under appeal.

Mrs Vestager’s tax state aid case against Nike is one of more than half a dozen that have been opened by the commission since June 2013. To date, the commission has found Luxembourg provided unlawful support to Fiat, Amazon and Engie, worth €23.1 million, €282.7 million and €120 million respectively.

The Netherlands was also found to have provided €25.7 million of illicit support to Starbucks. An investigation into the Dutch corporate structures used by Ikea is still ongoing.

Nike, responding to the announcement of the investigation on Thursday, said the company was “subject to and rigorously ensures that it complies with all the same tax laws as other companies operating in the Netherlands”. He added: “We believe the European Commission’s investigation is without merit.” – Copyright The Financial Times Limited 2018