The European Commission vs. Nike and the Netherlands, July 2021, European Court of Justice Case No T-648/19

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In 2016 the European Commission announced that it had opened an in-depth investigation to examine whether tax rulings (unilateral APA’s) granted by the Netherlands had given Nike an unfair advantage over its competitors, in breach of EU State aid rules.

The formal investigation concerned the tax treatment in the Netherlands of two Nike group companies, Nike European Operations Netherlands BV and Converse Netherlands BV. These two operating companies develops, markets and records the sales of Nike and Converse products in Europe, the Middle East and Africa (the EMEA region).

Nike European Operations Netherlands BV and Converse Netherlands BV obtained licenses to use intellectual property rights relating to Nike and Converse products in the EMEA region. The two companies obtained the licenses, in return for a tax-deductible royalty payment, from two Nike group entities, which are currently Dutch entities that are “transparent” for tax purposes (i.e., not taxable in the Netherlands).

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 Nike European Operations Netherlands and Converse Netherlands for the use of the intellectual property.

As a result of these tax rulings, Nike European Operations Netherlands BV and Converse Netherlands BV are only taxed in the Netherlands on a limited operating margin based on sales.

The Commission was concerned that the royalty payments endorsed by the rulings may not reflect economic reality. According to the Commission the payments appeared to be higher than what independent companies negotiating on market terms would have agreed.

On 26 September 2019 Nike brought the decision to open the investigation to the European General Court claiming the investigation was in breach of fundamental  EU rights, principles of good administration and equal treatment by

(1) erring in law in the preliminary assessment of the aid character of the contested measures.

(2) not providing sufficient reasons for finding that the contested measures fulfil all elements of State aid, especially why they should be regarded as selective.

(3) prematurely opening a formal investigation and providing insufficient reasoning for the existence of State aid where there were no difficulties to continue the preliminary investigation.

Judgement of the Court

On 14 July 2021 The General Court dismissed the claims brought by Nike.

The Court agreed that the intercompany royalties payments as determined in the tax rulings (unilateral APA’s) issued by the Netherlands left the distribution affiliates with less profits than would have occurred at arm’s length.

EC vs Nike and NL june 2021 ECJ T 648-19

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