This week in tax: EU wins right to investigate Nike
The European Commission will be pursuing its state aid investigation of Nike’s Dutch tax arrangements after the US sportswear company lost its bid to stop the probe this week.
Nike has lost its appeal to the European General Court to halt the EU state aid investigation into its tax arrangements in the Netherlands. The sportswear company faces difficult questions about five Dutch tax rulings.
The General Court ruled on July 14 that the EU state aid investigation into Nike’s Dutch tax arrangements should go ahead. Case T-648/19 concerns the company’s subsidiaries Nike European Operations Netherlands BV (NEON) and Converse Netherlands BV (CN).
The European Commission launched an investigation into whether the Dutch tax authority granted illegal state aid to Nike in tax rulings from 2006, 2010, and 2015. The company denied that it received illegal state aid and set out to prevent the investigation.
“Nike is subject to and rigorously ensures that it complies with all the same tax laws as other companies operating in the Netherlands,” the company said in a statement. “We believe the European Commission’s investigation is without merit.”
Nike has claimed that the Commission’s preliminary assessment contained ‘legal errors’. The company also claimed that the EU failed to provide “sufficient reasons for finding that the contested measures fulfil all elements of state aid”. Yet the court dismissed this argument.
The General Court found that the Commission had not breached the principles of good administration and equal treatment. Instead, the court found that the provisional assessment was carried out in a diligent and impartial manner. The investigation is therefore allowed to go ahead.
Other top ITR stories this week:
The UK lacks ambition on pillar one
The UK failed to push for a more “ambitious” pillar one ahead of the July G20 meeting. The meeting may have endorsed the OECD’s two-pillar solution, but the plans still have plenty of critics.
The OECD’s pillar one proposal – set to be implemented by 131 countries – lacks “ambition” as pillar two is bound to raise further revenue for tax jurisdictions, according to speakers at the All-Party Parliamentary Group’s (APPG’s) Tax Reform virtual roundtable.
The UK was criticised for failing to push for a higher global tax rate amid the US Secretary of the Treasury’s call for a 21% minimum corporate tax rate.
“The outline of this had the potential of being ambitious. On pillar one, we were looking at ending the use of the arm’s-length principle. That is something we have pushed and where the arc of history is bending, but we have ended up with very small steps. Pillar one is very small,” said Alex Cobham, chief executive at the Tax Justice Network (TJN).
“The UK government has not insisted to make sure companies from elsewhere are paying tax to the UK. Pillar two is where the ambition remains. Pillar one hasn’t ended the ability to shift profits,” said Cobham.
James Murray, Labour MP for Enfield North, said that the way pillar one applies to the biggest and most profitable companies does not strike an “amazing prowess” – marking the lack of ambition in the blueprint, as compared to the global minimum tax rate.
Jesse Norman, financial secretary to the UK Treasury, reiterated the strength of pillar one and the UK’s position in the reallocation of taxing rights.
OECD releases first report on LATAM tax transparency
An OECD report highlights that €12 billion ($14.16 billion) in additional tax revenue has been identified in Latin America (LATAM) due to exchange of information (EOI) measures.
Tax transparency is on the rise in LATAM, according to an OECD tax transparency report published as part of the Punta del Este Declaration, which promotes data sharing through EOI in LATAM. The Declaration was originally signed by four countries in 2018, but the COVID-19 pandemic has recently provided another impetus for transparency.
“Jurisdictions will need more and more resources to finance the expense of COVID… there is a need to seek additional revenue,” said Zayda Manatta, head of the Global Forum (GF) Secretariat at the OECD.
The pandemic has also raised questions about the social contract between companies, revenue authorities, and citizens. Public pressure on multinational enterprises (MNEs) to pay a fair share of tax is at a high point.
Manatta, who co-authored the report published on July 12, said the OECD is pleased with the progress that LATAM tax authorities are making on tax transparency. Nine LATAM countries participate in the automatic exchange of information (AEOI), and the Declaration includes the signatures of 13 jurisdictions. Only Bolivia, El Salvador, Mexico, and Nicaragua have yet to sign.
Meanwhile, the Convention on Mutual Administrative Assistance in Tax Matters, a multilateral instrument to tackle tax abuse, has been ratified by 13 LATAM countries. In signing the agreement, these countries have expanded their networks of EOI relationships.
Next week in ITR
The EU is adjusting the scope for its blacklist of non-cooperative tax jurisdictions, and the revised scope may include Singapore. This would be a break with previous lists and could have an impact on the Asian financial industries.
ITR will continue to follow the impact of the G20’s endorsement of the OECD’s two-pillar solution for digital tax. Although the G20 signing up to the proposals is a landmark in the history of tax policy, there is a lot of uncertainty about the key details.
Meanwhile, technology companies are accused of undermining development in African countries by failing to collect VAT. This cuts to the heart of the digital tax debate. Many African governments feel that they are not being listened to.
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