EU investigating Nike over IP licensing and tax structure
The European Commission has announced it is investigating Nike for an IP licensing arrangement which may have helped it avoid tax in the Netherlands.
In a statement issued yesterday, January 10, the Commission said it is investigating the tax arrangements of two Nike subsidiaries: Nike European Operations Netherlands and Converse Netherlands.
The two companies licensed Nike’s IP rights in return for royalties which are not taxable in the Netherlands.
According to the Commission, Dutch authorities issued five tax rulings from 2006 to 2015, two of which are still in force, which determine the royalty to be paid by the two companies for use of the IP.
The Commission expressed its concern that “the royalty payments endorsed by the rulings may not reflect economic reality”. A preliminary assessment by the Commission concluded that the licence royalties “appear higher than what would normally be negotiated on market terms”.
The recipients of the royalty payments, the statement said, “are Nike group entities that have no employees and do not carry out any economic activity”.
If the Dutch tax rulings gave Nike an advantage allowing it to pay less tax than other companies, it would amount to “illegal state aid”, the Commission warned.
Margrethe Vestager, commissioner in charge of competition policy, said that EU member states “should not allow companies to set up complex structures that unduly reduce their taxable profits”.
The Commission will carefully examine Nike’s tax arrangements in the Netherlands and “assess whether it is in line with EU State aid rules,” Vestager added.
Vestager also welcomed actions taken by the Dutch government to reform its corporation tax rules, which she hoped would help “ensure that companies operate on a level playing field”.
In a statement sent to WIPR, a Nike spokesperson said that the company “rigorously ensures that it complies with all the same tax laws as other companies operating in the Netherlands”.
Nike believes that the “European Commission’s investigation is without merit,” the spokesperson added.
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