In early January, authorities in Europe announced an investigation into whether Nike received illegal tax breaks from the Dutch government. According to the investigation, the government potentially let Nike avoid paying taxes on sales made in the region. This could lead to sizable penalties like those that Amazon and Apple faced. For those who need a refresher, Apple had to pay the Irish government €14.3 billion in 2016 and Amazon had to pay Luxembourg €283 million in 2017. In 2015, Starbucks paid the Netherlands €25.7 million in a similar situation.
The inquiry is part of a larger crackdown by the European Commission on the Netherlands, Luxembourg, and Ireland. This crackdown is the result of accusations regarding questionable tax breaks given to multinational companies. The goal of those tax breaks would have been to attract the corporate headquarters, which results in offerings of white-collar jobs.
What the Involved Parties Say
The Dutch Finance Ministry is cooperating fully with the investigation while Nike says that it is “without merit.” Nike’s official statement indicated that Nike takes rigorous steps to ensure compliance with all tax laws in the Netherlands and elsewhere.
The Netherlands Is Known for Similar Issues
As mentioned earlier, this is not the first time that the Netherlands has had a tax-related issue with a major multinational company. The Netherlands is known for its business-friendly tax laws as well as officials who are very accommodating. As such, it tends to attract more investments from multinational companies than neighbors like France and Germany.
Historically, the Dutch Finance Ministry has allowed large companies to work out arrangements that involve using offshore tax havens. With these agreements, the companies can reduce their corporate tax bill by sending their profits to an offshore tax haven. The Ministry says that each year, around €22 million goes through the Netherlands with a final destination of low-tax countries. In addition to Nike, some of the other multinational businesses with headquarters in the Netherlands include Airbus, Google, Fiat Chrysler, Renault-Nissan, and IBM.
The Netherlands Does Plan Changes
Because the country has faced so much scrutiny and pressure from the European Commission as well as Dutch citizens regarding these tax favors, officials have indicated that they will make changes in the future. They vowed to tighten rules that let companies protect profits from taxes by hiding them as royalties. Officials also indicated they would stop approving corporate structures which allow for profits being sent to low-tax countries. On a related note, they said that royalties will be taxed starting in 2021.
Time will tell whether the Netherlands does truly tighten its tax-related practices or if the country continues to attract corporations for its tax benefits and cooperation with offshore tax havens.
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