Nike’s use of a Dutch loophole to cut taxes is in the spotlight after documents were released over the weekend called the Paradise Papers, released by the U.S.-based International Consortium of Investigative Journalists (ICIJ).
The Guardian recently broke down the ways in which Nike has been able to pay less taxes, listing aspects of Nike’s production process like its shoes being made in countries like Vietnam and Indonesia, and most importantly the money from sales of shoes flowing out of the UK and into the Netherlands. This is a big deal because the two companies at the focus of Nike’s Dutch operations pay taxes nearing $8 billion for Nike from revenue they receive from Nike sales across Europe, the Middle East and Africa.
Making matters even more interesting, from 2005 until 2014, Nike was able to move money from the Netherlands to Bermuda, which is known as an offshore tax haven, with the brands Bermudan subsidiary, Nike International Ltd. This entity held the company’s intellectual property rights for Nike’s sneaker brands.
But, in 2014 Nike changed things up again, adding a subsidiary called Nike Innovate CV, which has no home-base geographically. According to the Guardian report, Nike Innovate CV allows the company to get out of paying local taxes in the Netherlands.
According to French Newspaper De La Monde, Nike pays less than 2 percent in income tax with the help of the Netherlands, compared to the 25 percent average for European companies. Even more, the tax plan introduced in 2014 gave Nike the opportunity to reduce its overall tax rate from 24 percent to 16 percent in three years, according to De La Monde. However, Nike’s days of using this method might be numbered, as De La Monde reports that European countries are requiring Amsterdam to fill this tax gap by the year 2020.