The European Commission has launched a detailed investigation into whether Nike has received an unfair advantage over some of its competitors after being granted a favourable tax environment in the Netherlands.
The Commission said that the Netherlands issued five tax rulings since 2006, two of which are still active. It said that it endorsed a method of calculating royalty payments that “may not reflect economic reality.”
In a statement, Margrethe Vestager, the competition commissioner, stated: “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 case of Nike comes after other similar investigations that were launched by the Commission into tax schemes in Gibraltar, Belgium, Ireland, and Luxembourg. Reuters reported that the Beneficiaries of the schemes have included Apple, Amazon, Fiat, and Starbucks.
A spokesperson for Nike said that it believes that today’s probe is “without merit.” The finance ministry of Netherlands has said that it will cooperate with the investigation. It also agreed that tax rulings should not provide preferential treatment.
The case involves the tax treatment of two Nike group companies that are based in the Netherlands which develop, market and record the sales of products of both Nike and Converse in the Middle East, Africa, and Europe.
The Commission said that the two firms were able to obtain licenses to use intellectual property rights in the region, in return for tax-deductible royalty payments to two other Nike entities that are also based in the Netherlands, but are not taxable there.
It said that the preliminary findings suggested that the royalty payments were higher as compared to what independent firms would have agreed between themselves. As a result, the Netherlands may have allowed the Nike firms to pay a lower amount of tax. If this was validated, it would amount to illegal state aid.