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EU Opens Probe Into Dutch Tax Treatment Of Nike

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The European Commission said Thursday that it has opened an in-depth investigation into the tax treatment of Nike Inc. (NKE) in the Netherlands.

The EC noted that the tax rulings granted by the Netherlands to Nike may have given the sports apparel retailer an unfair and illegal advantage over its competitors in violation of European Union or EU State aid rules. The EC is the executive arm of the European Union and oversees competition policy in the EU.

The EC's formal investigation concerns the tax treatment in the Netherlands of two Nike group companies based in that country, Nike European Operations Netherlands BV and Converse Netherlands BV.

These two operating companies develop, market and record the sales of Nike and Converse products in Europe, the Middle East and Africa, or the EMEA region.

From 2006 to 2015, the Dutch tax authorities issued five tax rulings, two of which are still in force, endorsing a method to calculate the royalty to be paid by the companies for the use of intellectual property, the EC noted.

The EC's investigation will focus on whether the tax rulings endorsing these royalty payments may have unduly reduced the taxable base in the Netherlands of the two Nike entities since 2006. As a result of the rulings, the two companies are only taxed in the Netherlands on a limited operating margin based on sales.

According to the EC, the Netherlands may have granted a selective advantage to the Nike Group by allowing it to pay less tax than other stand-alone or group companies whose transactions are priced in accordance with market terms. If confirmed, this would amount to illegal State aid.

The EC said that at this stage, it is concerned that the royalty payments endorsed by the rulings may not reflect economic reality.

The Commission is also investigating tax rulings issued by the Netherlands in favor of Inter IKEA and a tax scheme for multinationals in the United Kingdom.

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