Nike has asked the European General Court in Luxemburg for the annulment of an investigation by the European Commission into the tax status of its Dutch-based European operations, according to Reuters, arguing that it has failed to prove that certain Dutch tax ruling in its favor amounted to illegal state subsidies. The court’s judges are expected to rule on the matter in the next months.
Asked to comment on the report, a spokesperson for Nike stated that the group ”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.”
Wondering whether the tax ruling was giving Nike an unfair advantage over competitors, the Commission launched an in-depth investigation into the matter two years after a group of journalists published the so-called “Paradise Papers,” questioning the fact that Nike had in fact been paying corporate tax of less than 3 percent on revenues generated in the EMEA region.
They found that Nike’s two Dutch subsidiaries were paying royalties to an entity located in Bermuda, called Nike International, for the use of Nike’s and Converse’s intellectual property. The Commission questioned the scheme as the royalties were deducted as business expenses, made to an entity that was not subject to taxation.
Under pressure from the EU, Dutch authorities abrogated three of the five tax rulings in question, which were issued between 2006 and 2016, and indicated that they were planning to change such tax regulations after 2020.
In its approach to the General Court, whose authority is second only to that of the European Court of Justice, Nike is now claiming that the Commission’s preliminary assessment of the case contained legal errors. It told the court that European regulators have been unable to provide “sufficient reasons for finding that the contested measures fulfil all elements of state aid, especially why they should be regarded as selective.”
Nike also criticized the Commission for rushing to open a formal investigation “where there were no difficulties to continue the preliminary investigation.”
Observers have noted that European authorities have not had much luck in pursuing similar cases of indirect state aid to big corporation. They won a case against Fiat but lost two others against Apple and Starbucks.