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EU investigating Nike over IP licensing and tax structure

Written by Laura Cannon- Solent University student on 14 January 2019

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It was reported last Friday that the European Commission are investigating Nike on the suspicion that they made an IP licensing arrangement to avoid tax in the Netherlands.  The commission has warned that if such activities have taken place this amounts to “illegal state aid.”

On 10th January the EU commission released a statement revealing they are looking into two Nike subsidiaries; Nike European Operations Netherlands and Converse Netherlands. It is believed that the two companies licensed Nike’s IP rights in return for royalties which are not taxable in the Netherlands.

It is stated that Dutch authorities issued five tax rulings from 2006 to 2015, two of which are still in force, which determine the royalty to be paid by the two companies for the use of IP. During the investigation the commission expressed its concern at the licence royalties which seemed “higher than what would normally be negotiated on market terms.” This is only the findings of a preliminary assessment; however it is starting to look as if the suspicions may have been correct.

Margrethe Vestager, the commissioner in charge of competition policy, said that the EU member states “should not allow companies to set up complex structures that unduly reduce their taxable profits.” The Commission is planning on carefully examining Nike’s tax arrangements in the Netherlands to see whether “it is in line with EU state aid rules” despite Nike’s clear objection stating that they feel the investigation “is without merit.”

Vestager concluded that she hoped the Dutch government would take steps to implement reforms to ensure “that it complies with all the same tax laws as other companies operating in the Netherlands.”

No further statement has been released as yet, but it will be interesting to find out the results of the commissions examination and their response to such activities!

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