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Image: Unsplash

An investigation into Nike’s tax activities in the Netherlands will go forward after a court in the European Union determined that Dutch tax authorities did not act improperly in initiating the probe into the Swoosh. In a decision on Wednesday, a panel for the European Union General Court held that the European Commission “complied with the procedural rules, and neither failed to fulfill its obligation to state reasons nor made manifest errors of assessment,” thereby, shutting down the Beaverton, Oregon-based sportswear behemoth’s attempt to quash the investigation into whether international arms of the company failed to pay millions of euros in taxes.

In a statement provided to Bloomberg on Wednesday, a representative for Nike stated that “Nike is subject to and rigorously ensures that it complies with all the same tax laws as other companies operating in the Netherlands.” The spokesman further asserted, “We believe the European Commission’s investigation is without merit.”

The probe got its start in January 2019 when the European Commission revealed that it had opened “an in-depth investigation to examine whether tax rulings granted by the Netherlands to Nike may have given the company an unfair advantage over its competitors, in breach of EU State aid rules.” In particular, the European Commission – which is the EU agency tasked with proposing legislation, implementing decisions, upholding the EU treaties and managing the day-to-day business of the 27-member bloc – asserted at the time that its formal investigation “concerns the tax treatment in the Netherlands of two Nike group companies based in the Netherlands, Nike European Operations Netherlands BV and Converse Netherlands BV,” both of which develop, market and record the sales of Nike and Converse products in Europe, the Middle East and Africa. 

At the heart of the Commission’s probe are five tax rulings issued by Dutch tax authorities between 2006 and 2015, which tax authorities claim spotlight “a method [that Nike’s Netherlands-based subsidiaries] used to calculate the royalties” to be paid to Nike – by way of a subsidiary in Bermuda, which does not maintain a corporate income tax – for their use of Nike intellectual property, including the company’s brand name, famed Swoosh logo, and various other trademark and patent-protected assets. Because those royalties were categorized as business expenses, Nike was able – thanks to the aforementioned tax authority decisions – to pay less tax than other competitors, thereby, giving rise to instances of Nike receiving illegal state aid, according to the Commission.

Early this year, Nike formally challenged the Commission’s preliminary assessment of its tax dealings. In a filing with the Luxembourg-located General Court, counsel for Nike argued in January that the Commission failed to cite “sufficient reasons for finding that the contested measures fulfill all elements of state aid, especially why they should be regarded as selective,” while also unnecessarily escalating the proceedings to a formal investigation when “there were no difficulties to continue the preliminary investigation.”

Not the first time that it has investigated “multinationals’ sweetheart tax deals with EU countries giving them an unfair advantage,” the Commission has taken on a number of big-name companies – from Apple and Amazon to Starbucks and Fiat – in recent years in furtherance of its ability to examine whether tax rulings by EU member states result in state aid – or a reduction of a company’s tax burden that would not otherwise existed but for the ruling. Amazon and Apple have both been successful in appealing the Commission’s findings against them, with the General Court holding in May that the European Commission failed to prove that there was an illegal tax advantage given to Amazon in Luxembourg, where one of its European subsidiaries is based. As such, the court took the 250 million euros ($303 million) tax judgment off of the table.

Before that, Apple challenged the record 13 billion euros ($15.7 billion) tax decision waged against it in connection with tax payments in Ireland, with the General Court finding in July 2020 that Commission had “not succeeded in showing to the requisite legal standard that there was an advantage” at play for Apple, and thus, was wrong to declare that Apple “had been granted a selective economic advantage and, by extension, state aid.” At the time, Bloomberg characterized the court’s decision as “a dramatic setback to Commissioner Margrethe Vestager’s probes of national tax rulings that she says were an illegal subsidy for some large multinational firms.” 

The European Commission has since sought to take the case to the EU’s highest court, filing an appeal to the Court of Justice in September 2020, with Ms. Vestager stating that the Commission “has to continue to use all tools at our disposal to ensure companies pay their fair share of tax.”

The case is Nike European Operations Netherlands et Converse Netherlands v. European Commission, T-648/19.