Companies should not be able to reduce taxable profits to gain unfair advantage, says commissioner

The European commission has opened an investigation into the tax treatment of Nike in the Netherlands, saying it may have given the US sportswear maker an illegal advantage.

The commission said in a statement that Dutch authorities had issued five tax rulings from 2006 to 2015, two of which were still in force, endorsing a method to calculate the royalty payments to two Nike entities based in the Netherlands.

The executive body, which oversees competition policy in the 28-member European Union, said it was concerned that the royalty payments endorsed by the rulings “may not reflect economic reality”.

It confirmed that it had intensified its investigation following allegations arising from the Paradise Papers, an investigation into tax avoidance published by the Guardian as part of a global collaboration of news organisations led by the ICIJ in Washington.

“The commission had already received some information on these rulings in the course of its overall investigation on tax rulings practices in all member states before the Paradise Papers were leaked,” a commission spokesperson said.

“Following the Paradise Papers allegations, the commission intensified its investigation and requested additional information from the Netherlands, which led to the doubts the commission is expressing in its opening decision of today.”

The commission has pushed governments to tighten taxation rules in response to revelations in the so-called LuxLeaks and the Panama and Paradise Papers, but some countries have resisted EU-wide changes.

The Nike case, announced on Thursday, follows other investigations by the EU executive since 2013 into tax schemes in Belgium, Gibraltar, Luxembourg, Ireland and the Netherlands that it says allow companies to establish structures to reduce their taxes unfairly.

The countries have been ordered to recover the tax from beneficiaries of such schemes, which have included Amazon, Apple, Starbucks and Fiat.

“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 EU competition commissioner, Margrethe Vestager, said in a statement.

Nike said it was subject to and ensured that it complied with all the same tax laws as other companies operating in the Netherlands.

“We believe the European commission’s investigation is without merit,” a Nike spokesperson said.

The Dutch finance ministry said it would cooperate with the commission’s investigation and said that it agreed tax rulings should provide certainty and not preferential treatment.

Vestager did say she welcomed actions taken by the Netherlands to reform its corporate taxation rules and to help to ensure that companies operate on a level playing field.

The commission said its new investigation concerned the tax treatment of two Nike companies based in the Netherlands – Nike European Operations Netherlands BV and Converse Netherlands BV – which market and record sales for the US sportswear retailer’s operations in Europe, the Middle East and Africa.

They received licences to use intellectual property rights of Nike and Converse products in the region in return for tax-deductible royalty payments to two other Nike entities also based in the Netherlands, but not taxable there.

The commission said the royalty payments appeared higher than what independent companies would have agreed between themselves. As a result, the Netherlands may have allowed the Nike companies to pay a lower amount of tax. If this was confirmed, it would amount to illegal state aid.