The General Court of the European Union has dismissed the appeal by Nike and Converse to overturn the European Commission’s decision of January 2019 to open a formal investigation into the tax rulings that they benefited from in the Netherlands between 2006 and 2015 (see EUROPE 12169/16), in a judgment handed down on Wednesday 14 July (Case T-648/19).
From a fiscal perspective, these tax rulings validate a transfer pricing transaction, in particular the level of royalties owed by Nike and Converse to other companies in the Nike group, which are not taxed in the Netherlands, for the exploitation of intellectual property rights. These royalties are tax-deductible for Nike and Converse in the Netherlands.
According to the Commission, these tax rulings would confer a selective advantage on Nike and Converse insofar as the taxable profit of the two companies would be lower than that which would be calculated for a company in a comparable situation and operating under conditions of free competition.
The General Court rejects all of the arguments put forward by the plaintiffs. It considers that the Commission’s decision, which seeks additional information from the Netherlands in order to clarify its preliminary assessment, has a clear and unequivocal motivation. Moreover, the opening of the formal procedure allows for a detailed analysis of whether Nike and Converse have received an undue advantage under EU state aid rules. And, according to the General Court, the conditions to provisionally assume the selectivity of the measures in question were all met.
Furthermore, the European Court is of the opinion that the Commission was not obliged to extend its preliminary examination to the situation of the companies benefiting from 98 tax rulings identical to those of Nike and Converse. It underlines that the Commission is entitled to assess a measure as individual aid without first having to check whether the measure is part of a general aid scheme.
Finally, according to the General Court, the Commission did not violate the principle of sound administration, as it conducted its provisional assessment of the contested measures in an impartial manner.
See the General Court’s judgment: https://bit.ly/2T9JIKx (Original version in French by Mathieu Bion)