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European Commission Opens In-Depth State Aid Investigation into Tax Treatment of Nike in the Netherlands

On 10 January 2019, the European Commission announced that it has opened an in-depth investigation into the tax treatment of Nike in the Netherlands, including whether tax rulings granted to Nike have given the company an unfair advantage, in violation of State aid rules. The following is a summary of the investigation as provided by the Commission:

The Commission's formal investigation concerns the tax treatment in the Netherlands of two Nike group companies based in the Netherlands, Nike European Operations Netherlands BV (“NEON”) and Converse Netherlands BV (“CN BV”). These two operating companies develop, market and record the sales of Nike and Converse products in Europe, the Middle East and Africa. They obtained licenses to use intellectual property rights relating to, respectively, Nike and Converse products in the EMEA region in return for a tax-deductible royalty payment, from two Nike group entities, which are currently Dutch entities that are "transparent" for tax purposes.

From 2006 to 2015, the Dutch tax authorities issued five tax rulings, two of which are still in force, endorsing a method to calculate the royalty to be paid by the two companies for the use of the intellectual property. As a result of the rulings, NEON and CN BV are only taxed in the Netherlands on a limited operating margin based on sales.

The Commission investigation will focus on whether the tax rulings endorsing these royalty payments may have unduly reduced the taxable base in the Netherlands of NEON and CN BV since 2006. As a result, the Netherlands may have granted a selective advantage to the Nike group by allowing it to pay less tax than other stand-alone or group companies whose transactions are priced in accordance with market terms. If confirmed, this would amount to illegal State aid.

Click the following link for the full release on the investigation.

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