LUXEMBOURG (CN) — The European Commission can move forward with its investigation into a Dutch tax deal with Nike, the EU’s second-highest court ruled Wednesday, finding no red flags in the 2019 decision to investigate a series of tax arrangements between the Dutch government and the Portland-based shoe giant.
"The Commission complied with the procedural rules, and neither failed to fulfil its obligation to state reasons nor made manifest errors of assessment," the Luxembourg-based court held.
Between 2006 and 2015, the Dutch government made a series of tax agreements with Nike and one of its subsidiaries, Converse, both of which are headquartered outside of Amsterdam. According to the commission, the method of calculating royalties — the amount paid by subsidiaries for use of intellectual property — didn’t reflect the “economic reality.”
"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,” vice-president for competition, Margrethe Vestager, said in a statement at the time.
Nike and Converse had contested the investigation decision, accusing the EU’s executive body of being overzealous when it opened a formal investigation and had failed to provide evidence the tax deal constituted state aid. EU regulations prevent governments from supporting private companies on the grounds that it creates market distortions across the bloc.
“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,” the company said in a statement.
The Netherlands has been accused of being a tax haven for decades, a charge the Dutch government denies. A 2017 study found countries miss out on more than $20 billion tax revenues as a result of Dutch tax deals. But some of the agreements have held up under scrutiny. The court annulled a $33 million tax penalty against Starbucks in 2019, finding the commission failed “to demonstrate that the [advance pricing arrangement] had conferred an advantage.” A deal with Swedish furniture maker Ikea, which is actually headquartered in the Netherlands, is also under investigation.
Under mounting public pressure and looming changes to state aid rules, the Dutch government announced in 2018 it would change some of the rules that it accused companies of “taking advantage of” to reduce their tax burdens. We must be fair in recognizing that some companies are misusing the open tax system that the Netherlands has,” former deputy finance minister Menno Snel told The New York Times in 2018.
Nike and Converse have two months to decide to appeal.
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