Nike Is Not Worried About EU Tax Avoidance Investigations, Only Because Of The Full Opening Of The Chinese Market.

Since 2013, the Executive Committee of the European Union has stepped up efforts to crack down on tax avoidance in order to thwart private pactions between multinational corporations and tax friendly countries.

After IKEA, apple and Starbucks, Nike is also eyeing.

On January 10th, the European Commission said that the tax agreement between sports brand Nike and the Holland government was being investigated by the EU competition regulators.

The EU suspects that Nike has received an unfair preferential tax rate in Holland.

Nike Europe is headquartered in Sylva Arthur M, Holland. The survey involved two Nike branches in Holland, namely, Nike European Operations Netherlands BV and Converse Netherlands BV.

The two companies are an important part of Nike's international business. They are responsible for the development and sales of Nike and CONVERSE brands in Europe, the Middle East and Africa.

According to the latest 2019 fiscal year two quarter earnings report, Nike group's sales in Europe, Middle East and Africa increased by 8% to US $2 billion 310 million.

Reuters reported that, or because of the support of the Holland tax authorities, the two companies owned the franchise of Nike and CONVERSE products in the area. They paid the other two Nike companies in Holland in the form of royalties, because Holland did not levy a withholding tax on royalties, thereby obtaining tax concessions.

The European Commission believes that Holland may participate in helping Nike pay lower taxes.

If the findings are confirmed, this will violate the EU regulations.

Though suspected of tax avoidance, from a legal point of view, Nike's tax system in Holland is legal.

Therefore, the focus of the European Commission's investigation is whether the tax agreement reached between Nike and the Holland authorities violates the European Union's provisions on tax preferences.

Margrethe Vestager, an EU Commissioner for competition policy, said: "Member States should not allow companies to build complex corporate structures to reduce taxable profits too much, so that they can gain unfair advantages in a competitive environment." Margaret Vestager said.

For the intervention of the European Commission, Nike said in a written statement that the company strictly adheres to the tax laws of Holland and believes that the EU's doubts are groundless.

Holland responded that it would cooperate with the European Commission's tax investigation on Nike. "What needs to be clear is that this does not mean that the European Commission has made a ruling, only that they suspect there is an improper tax treatment, and we fully support the work of the Committee."

Since 2013, to strengthen the fight against Transnational tax avoidance, the European Union's investigation involves international companies such as apple, Starbucks, Fiat, Amazon and IKEA, and has recovered billions of euros in tax avoidance fines.

In November 2017, the International Union of investigative journalists (ICIJ) disclosed a list of tax havens called "Paradise documents", which attracted large numbers of politicians and multinational companies such as Nike.

The document revealed that Nike has been adapting to changes in the law so that tax evasion can be achieved through legitimate financial operations.

Nike, based in the United States, awarded intellectual property to the Holland branch Nike Innovate CV in 2014, and the profits earned in the European market were pferred to the Holland company in order to escape the tax payable in the United States.

Through this operation, the offshore income of the company increased, but the global tax rate was falling.

ICIJ said that since 2014, Nike's global tax rate has dropped from 24% to 16% in three years.

At present, the tax investigation will not have a substantial impact on Nike's global business.

Especially in the Greater China region, Nike presents a peaceful scene.

At the same time as the European Union announced the investigation, the opening ceremony of the three phase of Nike China logistics center was held in Taicang high tech Zone, Jiangsu province in January 10th.

As the first large-scale park expansion project of Nike China logistics center, the three phase will extend the construction area of logistics center to 30% to 260 thousand square meters, which will help Nike enhance its supply chain capability and operational efficiency in Greater China.

Dong Wei, general manager of Nike global vice president and greater China, said: "Nike is vigorously exploring digital driven sports retail innovation, green supply chain and personalized service. The three phase will help Nike better serve Chinese consumers."

The latest quarterly results show that the Greater China market remains strong, with sales rising 26% to 1 billion 544 million US dollars during the period, the fastest growing market area in the world.

Pre tax profit increased by 48% to $561 million.

At this point, Nike has achieved double-digit sales growth in the Greater China region for eighteenth consecutive quarters.

Author: Luo Yingying