Nike’s tax deals probed as EU targets another U.S. giant

Nike Inc. is the latest U.S. giant to become embroiled in the European Union’s crackdown on tax deals regulators say give a select group of big firms an unfair edge over their rivals.

Margrethe Vestager, the EU’s competition commissioner, announced a probe into the sports equipment maker on Thursday, as she criticized nations for allowing companies to set up complex structures “that unduly reduce their taxable profits and give them an unfair advantage."

In a campaign for fairer taxation, Vestager has used the bloc’s tough state aid rules to attack special treatment doled out to the likes of Apple Inc., Amazon.com Inc. and Starbucks Corp. to name a few. While European companies have also been targeted, U.S. firms have borne the brunt, attracting criticism of the EU from President Donald Trump’s administration along the way.

A Nike store in Chicago
A logo hangs on display outside a Nike Inc. store in Chicago, Illinois, U.S. Photographer: Christopher Dilts/Bloomberg

The EU investigation focuses on Dutch tax treatment of Nike European Operations Netherlands BV and Converse BV which it says may have unfairly reduced the tax bill for the Nike group. The probe will weigh five tax rulings issued by the Netherlands from 2006 to 2015, two of them still in force, that calculated the royalty paid by the Nike units to use intellectual property for Nike and Converse products sold in Europe, the Middle East and Africa.

"As a result of the rulings, Nike European Operations Netherlands BV and Converse Netherlands BV are only taxed in the Netherlands on a limited operating margin based on sales," the EU said. The royalty payments "appear to be higher" than usual market terms and the units that receive the royalties "have no employees and do not carry out any economic activity."

‘Without Merit’

The commission’s investigation “is without merit,” Nike said in an emailed statement. The company "is subject to and rigorously ensures that it complies with all the same tax laws as other companies operating in the Netherlands," it added.

Nike also faces a separate EU antitrust case into its sales practices. That probe examines whether the company illegally restricts traders selling licensed merchandise outside one country or online.

The Dutch finance ministry said it fully supports the EU’s work and would collaborate with the probe. Tax rulings "should not lead to preferential treatment," it said in an emailed statement. The Dutch government has recently tightened its practice on tax rulings and won’t issue any "if the sole motive is to save Dutch or foreign tax."

The Netherlands, Luxembourg and Ireland have attracted special attention from the EU over tax deals that favor certain companies. Starbucks’s tax affairs in the Netherlands were among the first to get a negative EU decision, when the regulator in 2015 said the company had to repay as much as 30 million euros.

A global push for more tax transparency was fueled in 2014 by the so-called Luxleaks revelations by a group of investigative reporters. They published thousands of pages detailing secret tax arrangements between Luxembourg and multinational companies including Walt Disney Co., Microsoft Corp.’s Skype and PepsiCo Inc.

Nike was among another group of companies highlighted out later by the same group in the so-called Paradise Papers, accusing the sports brand of funneling billions of dollars into offshore havens. The company’s Chief Tax Officer Patti Johnson in June last year answered questions by EU lawmakers about the firm’s tax practices in a special European Parliament committee looking into tax evasion and tax avoidance.

— With assistance from Tim Loh and Wout Vergauwen