The European Court dismisses Nike's appeal for the Dutch tax aid investigation

In 2019, the Commission decided to initiate a formal investigation procedure regarding tax rulings adopted by the Dutch tax administration in favor of Nike European Operations Netherlands in 2006, 2010 and 2015 and Converse Netherlands in 2010 and 2015, both Dutch subsidiaries of the Dutch holding company, Nike Europe Holding, whose shareholder is Nike Inc., established in the United States of America.

Those tax agreements allowed royalties owed by the Dutch subsidiaries Nike and Converse to other companies in the Nike group to not be subject to tax in the Netherlands, as consideration for the exploitation of intellectual property rights. These royalties are tax deductible from the income subject to tax in the Netherlands.

According to the Commission's provisional assessment, these tax agreements conferred a competitive advantage on both subsidiaries, insofar as the corporate income tax of these two companies in the Netherlands is calculated - according to the Commission - on the basis of a lower annual profit level than if the operations within the group of these companies had been valued, for tax purposes, at their price under arm's length conditions.

In the Commission's view, the amount of royalties owed by Nike and Converse does not correspond to the amount that would have been negotiated under market conditions for a comparable transaction between independent companies.

In the General Court's view, the contested decision contains a clear and unequivocal statement of reasons, so that the appellants cannot criticize the Commission for providing incomplete reasons for the individual nature of the contested measures. Therefore, the Commission did not breach its obligation to state reasons by failing to give reasons for the existence or not of an aid scheme in the present case.

Furthermore, the reasons for the contested decision do not present any internal contradiction as regards the examination of the selective nature of the contested measures. The Commission also respected its obligation to state reasons with regard to assessing the comparability of Nike's situation with that of other companies.

With regard to the company's claim that the tax agreements are only declarative in nature and are not a prerequisite either for carrying out activities in the Netherlands or for applying the principle of full jurisdiction, the General Court notes that it is up to the Commission to compare the profit subject to taxation of the beneficiary of those agreements with the situation, resulting from the application of the tax rules of general application under Dutch law, of a company that is in a comparable factual situation, carrying out its activity in arm's length conditions. In this context, if the tax agreements admit a certain price level for a certain transaction between companies in a group, it is necessary to check whether that level corresponds to that which would have been practiced under market conditions.

According to the appellants, if the Commission forwarded a series of new requests for information to the Netherlands and decided to direct its investigation against Nike, it was as a result of the publication of an investigation by an international consortium of journalists, in November 2017, and of the political pressure that this unleashed. In the appellants' opinion, the Commission would have to extend its investigation to almost 700 companies that - according to the appellants - use a corporate structure similar to that of Nike.

However, the General Court recalls that the purpose of initiating a formal investigation procedure is to enable the Commission to obtain all the opinions necessary to be able to take a final decision. The General Court considers that the Commission has fulfilled its obligation to initiate the formal investigation procedure in the presence of great difficulties, and that it did so without making manifest errors of assessment.