The EU has launched a probe into whether Nike benefited from sweetheart tax arrangements in the Netherlands that breached EU curbs on state support, FT reports.
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.”
The Financial Times reports “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.
The Financial Times adds “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 Ireland, which resulted in the US tech group paying €14.3bn in back taxes to Ireland.
FT’s report says that the 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, the Netherlands was also found to have provided illicit support to Starbucks. An investigation into the Dutch corporate structures used by Ikea is still ongoing.