European Commission Intensifies Investigation on Nike’s Business Operations in Netherlands After the Paradise Paper’s Leak

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Nike’s businesses operations in Netherlands has been put under the scanner by European Commission. The commissions believes that Netherlands tax policies has given the US sports shoe brand an unfair advantage.

The commission said in a statement that the decision to start investigation in the company’s taxation history were launched after the scandalous revelations of Paradise Papers investigation by International Consortium of investigative Journalists (ICIJ). The commission said that an investigation was already underway before the Paradise Papers leak as it had received information about the faulty tax ruling practices of EU member states. It further said that the leak intensified its investigation and sought information from the Dutch authorities.

The commission which oversees competition policies of 28 member states and is responsible for maintaining healthy competition and compliance of corporate laws in EU. The commission expressed concerns about Netherland’s tax rulings on royalty payments. The issue stems from the complex business operating structures of Nike in Netherland. Nike has two companies registered in Netherland, Netherland BV and Converse Netherland BV. These companies received intellectual property rights licenses for Nike and converse products in exchange for royalty payments which are tax deductible to two other Nike companies based in Netherland but non-taxable there. If these companies had been independent, the royalties would be significantly low but the higher than normal royalties’ payments raise suspicions that the complicated structure evolved to intentionally exploit loopholes in tax regulations and evade taxes.

Margrethe Vestager, EU’s competition commissioner, reputed for her fierce tax rulings, said in the statement that the taxation policies of EU member should be based on sound economic realities rather than rule book enforcement to ensure that businesses don’t set up complex structures in order to reduce taxable profits and threaten competition by gaining unduly advantages.

The commission’s move to go after Nike comes after it ordered major American companies to pay millions of dollars as tax compensations. Apple was hard hit by a $16.31 billion compensation in 2016 ruling. In 2017, Amazon paid Euro 282.7 million to Luxembourg while Starbucks paid Euro 25.7 million to Netherlands in 2015. McDonald proved to be an exception after investigation into fast food company’s tax practices concluded that it received no illegal state aid.

These massive tax rulings on Apple and other big US conglomerates has earned Margrethe Vestager, a title of Competition czar and more recently ‘tax lady’ by POTUS Donald Trump as part of conversation with Jean-Claude Juncker, the European Commission president. She has reiterated that her efforts are targeted towards convoluted methods of tax avoidance and profit shifting adopted by multinational corporations.

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