The European Commission is launching a probe into whether US activewear firm Nike has received preferential tax treatment in the Netherlands

The European Commission is launching a probe into whether US activewear firm Nike has received preferential tax treatment in the Netherlands

The European Commission is launching a probe into whether US activewear firm Nike has received preferential tax treatment in the Netherlands giving it an unfair advantage over its competitors.

The Commission's investigation concerns the tax treatment of two Nike group companies; Nike European Operations Netherlands BV and Converse Netherlands BV. These two operating companies develop, market and record the sales of Nike and Converse products in Europe, the Middle East and Africa (the EMEA region).

The two companies obtained licenses to use intellectual property rights relating to 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 (that is, not taxable in the Netherlands). The Nike group's corporate structure itself is outside the remit of EU state aid rules.

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 Nike European Operations Netherlands and Converse Netherlands for the use of the intellectual property.

As a result of the rulings, the companies are only taxed in the Netherlands on a limited operating margin based on sales. The Commission is concerned that the royalty payments endorsed by the rulings appear to be higher than what independent companies negotiating on market terms would have agreed between themselves in accordance with the arm's length principle.

Margrethe Vestager, the commissioner in charge of competition policy, 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 competitors. The Commission will investigate carefully the tax treatment of Nike in the Netherlands, to assess whether it is in line with EU state aid rules. At the same time, I welcome the actions taken by the Netherlands to reform their corporate taxation rules and to help ensure that companies will operate on a level playing field in the EU."

The Commission investigation will focus on whether the Netherlands' tax rulings endorsing these royalty payments may have unduly reduced the taxable base in the Netherlands of Nike European Operations Netherlands BV and Converse Netherlands 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.

A spokersperson for Nike told just-style the Commission's 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. We believe the European Commission's investigation is without merit."