EU Commission to investigate Nike tax rulings in the Netherlands

It has recently been announced that Nike is under investigation by the European Commission over its IP licensing arrangements in the Netherlands. Tax rulings by Dutch authorities in the Netherlands have sparked suspicion that Nike entities are trying to avoid tax, giving them a significant advantage over their competitors.

The Commission will investigate two Nike companies based in the Netherlands, Nike European Operations Netherlands BV and Converse Netherlands BV ("the Dutch Companies") which are both subsidiaries of Nike Inc. These companies are responsible for Nike and Converse products in Europe, the Middle East and Africa (the EMEA region) The Dutch Companies obtained licenses from their parent company to exploit the intellectual property rights in various products in Nike and Converse ranges in order to develop, market and record the sales of those products.

The licenses are granted alongside a royalty payment to the Dutch Companies, and it is suspected that this is instead of them retaining profits which are passed up the parent company chain. These royalty payments are not taxable in the Netherlands, and if the suspicions are correct, the profits are moved out of the jurisdiction. The European Commission are concerned that the royalty payments granted to the Dutch companies by Nike Inc. may not reflect economic reality because they appear to be higher than what independent companies might be expected to have agreed.

Margaret Vestager, European Commissioner for Competition, said the Commission will assess whether the treatment of Nike in the Netherlands is in line with the EU State aid rules. In a statement she 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 competition".

According to a report from the European Commission, the structure of the Nike corporation itself does not comply with the EU State aid rules either.

The investigation will consider all tax and licensing arrangements from 2006 onward and decide whether the Netherlands's tax rulings endorsing these royalty payments may have reduced the tax payable by Nike. If confirmed, this would amount to illegal State aid whereby the Netherlands is allowing Nike to pay less tax than other companies that act in accordance with market terms, giving a selective and unfair advantage to the Nike group.

If you have any questions on the above, please do not hesitate to contact the team at McDaniel & Co. on 0191 281 4000 or legal@mcdanielslaw.com.