The investigation will go on.
A European Union commission investigating Dutch tax rulings that go as far back as 2006 dismissed today an action brought by Nike and Converse against the commission’s decision to initiate the investigation.
“The Commission complied with the procedural rules, and neither failed to fulfill its obligation to state reasons, nor made manifest errors of assessment,” the General Court of the European Union, which is based in Luxembourg, said in a press release.
The investigation began in 2019 and concerned whether tax rulings granted by the Netherlands to Nike may have given the global athletic company an unfair advantage over its competitors, breaching EU state aid rules. Nike had asked the General Court of the EU to annul the commission’s decision to investigate.
Nike “put forward arguments alleging breach of the obligation to state reasons, manifest errors of assessment and non-compliance with procedural rights,” the press release said. “According to the court, the contested decision contains a clear and unequivocal statement of reasons; therefore the applicants cannot complain that the commission’s reasoning as regards the individual character of the measures at issue was incomplete.”
From 2006 to 2015, Dutch tax authorities issued five tax rulings, two of which are still in effect, approving a method to calculate the royalty paid by the two Netherlands-based Nike companies for the use of the intellectual property.
“Those tax rulings validate for tax purposes a transfer pricing arrangement, in particular the level of royalties payable by Nike and Converse to other Nike group companies, which are not taxed in the Netherlands, in return for the use of intellectual property rights. The royalties are tax deductible from the taxable revenue of Nike and Converse in the Netherlands,” the court said in the release.
The investigation centered on two Nike group companies based in the Netherlands, Nike European Operations Netherlands BV and Converse Netherlands BV. Both entities develop, market and record the sales of Nike and Converse products in Europe, the Middle East and Africa.
Since 2013, a growing list of mega firms, including Apple, Starbucks and Amazon, have faced scrutiny by the commission over their tax-paying practices. Many of those investigations have yielded multi-million dollar payouts to EU member countries from several major firms.