Euro­pean Com­mis­sion in­ves­ti­gates whether roy­al­ties paid to Nike’s off­shore units were higher than the mar­ket value of the in­tel­lec­tual prop­erty

The Sunday Independent - - ECONOMY - JACK EWING

EURO­PEAN au­thor­i­ties are in­ves­ti­gat­ing whether the Dutch gov­ern­ment il­le­gally al­lowed the Amer­i­can sports­wear maker Nike to avoid pay­ing taxes on prof­its from sales in the re­gion, po­ten­tially ex­pos­ing the com­pany to huge penal­ties sim­i­lar to those im­posed on Ap­ple and Ama­zon.

The in­quiry, an­nounced this week, is part of a broader Euro­pean Com­mis­sion crack­down on coun­tries like Ire­land, Lux­em­bourg and the Nether­lands over ac­cu­sa­tions that they gave ques­tion­able tax breaks to multi­na­tional com­pa­nies, many of them based in the US, as a way of at­tract­ing cor­po­rate head­quar­ters and white-col­lar jobs.

Sim­i­lar in­ves­ti­ga­tions re­sulted in an or­der that Ap­ple pay €14.3 bil­lion, or $16.5bn, to the Ir­ish gov­ern­ment in 2016 and a re­quire­ment that Ama­zon pay €283 mil­lion to Lux­em­bourg in 2017. Star­bucks paid €25.7m to the Nether­lands in 2015, and an in­ves­ti­ga­tion into Ikea is un­der way.

The Dutch finance min­istry said it was co-op­er­at­ing with the in­ves­ti­ga­tion. “We fully sup­port the work of the com­mis­sion,” the min­istry said in a state­ment.

Nike said the in­ves­ti­ga­tion was “with­out merit”.

“Nike is sub­ject to and rig­or­ously en­sures that it com­plies with all the same tax laws as other com­pa­nies op­er­at­ing in the Nether­lands,” the com­pany, which is based in Beaver­ton, Oregon, said in a state­ment.

The Nether­lands has long been a mag­net for multi­na­tional cor­po­ra­tions, at­tract­ing more for­eign in­vest­ment than Ger­many or France be­cause of its busi­ness-friendly tax laws and its ac­com­mo­dat­ing of­fi­cials.

Big com­pa­nies have typ­i­cally worked out ar­range­ments with the Dutch finance min­istry un­der which they min­imised their tax bills by fun­nelling prof­its to off­shore tax havens with lit­tle or no cor­po­rate taxes.

About €22bn a year flows through the Nether­lands to low-tax coun­tries, ac­cord­ing to the min­istry, which did not pro­vide an es­ti­mate of how much Nike might have saved.

Air­bus, Fiat Chrysler, Google, IBM and the Re­nault-Nis­san al­liance are among the cor­po­ra­tions that have head­quar­ters in the Nether­lands. Nike’s Euro­pean head­quar­ters are in Hil­ver­sum, just south of Am­s­ter­dam.

The Nether­lands has come un­der pres­sure from the Euro­pean Com­mis­sion and Dutch cit­i­zens dis­grun­tled about spe­cial favours for big com­pa­nies.

Of­fi­cials in Am­s­ter­dam have re­sponded by vow­ing to tighten rules that al­low com­pa­nies to cam­ou­flage prof­its as “roy­al­ties” and pro­tect them from taxes.

Dutch of­fi­cials have also said they would no longer ap­prove cor­po­rate struc­tures that al­lowed com­pa­nies to steer prof­its to low-tax coun­tries and that roy­al­ties would be sub­ject to tax­a­tion from 2021.

The Nether­lands is also mov­ing to elim­i­nate in­con­sis­ten­cies in in­ter­na­tional tax laws that cor­po­ra­tions can ex­ploit to avoid taxes.

Nike’s tax prac­tices in the Nether­lands have drawn scru­tiny be­fore. It used a com­mon method of shift­ing prof­its to a tax haven, ac­cord­ing to re­search pub­lished in 2017 by the In­ter­na­tional Con­sor­tium of In­ves­tiga­tive Jour­nal­ists based on leaked doc­u­ments known as the Par­adise Pa­pers.

First, Nike al­lo­cated own­er­ship of its “swoosh” trade­mark and other in­tel­lec­tual prop­erty to a subsidiary in Ber­muda, which has no cor­po­rate in­come tax. The subsidiary in Hil­ver­sum then paid roy­al­ties for the use of the trade­marks to the Ber­muda unit. The roy­al­ties counted as busi­ness ex­penses and there­fore were not taxed in the Nether­lands.

The com­pany’s strate­gies also low­ered its tax bill in the US and cut its world­wide tax rate to as lit­tle as 13 per­cent in 2017 from 35 per­cent in 2006, sav­ing bil­lions of dol­lars, ac­cord­ing to the con­sor­tium.

The Euro­pean Com­mis­sion is in­ves­ti­gat­ing whether the Dutch gov­ern­ment vi­o­lated EU rules by ap­prov­ing the tax avoid­ance scheme and giv­ing Nike and its Con­verse unit an un­fair ad­van­tage over com­peti­tors.

From 2005 to 2015, the com­mis­sion said in a state­ment, the Dutch au­thor­i­ties en­dorsed Nike’s method for cal­cu­lat­ing the taxd­e­ductible roy­al­ties paid to off­shore sub­sidiaries.

The com­mis­sion said it was ex­am­in­ing whether the roy­al­ties paid to the off­shore units, which had no em­ploy­ees, were higher than the mar­ket value of the in­tel­lec­tual prop­erty.

By pay­ing an in­flated price for the roy­al­ties, Nike could claim a larger tax de­duc­tion.

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