07 November 2017

Pin It

Paradise Papers reveal how Nike offshore profits $12 billion plus Untaxed in US

Paradise Papers reveal how Nike offshore profits $12 billion plus Untaxed in US
Paradise Papers important finding regarding Nike –
1- Nike shifted billions in trademark profits between subsidiaries to avoid high taxes in Europe.
2-Profits on trademarks including the iconic Swoosh helped increase offshore profits to $12 billion plus – untaxed in United States.
3-Dutch tax deals and loopholes were seized on by Nike, Uber and other U.S. multinationals.
4- The ICIJ reviewed stock market filings for America’s 500 largest publicly traded multinationals, using data available in June 2017 and found 214 subsidiaries that were formed as Dutch CVs. Nike currently has 11 CV subsidiaries.

Year 2006 –
authorities in the Netherlands had effectively given Nike the green light for a 10-year tax-avoidance arrangement that would allow the sportswear-maker to shift billions of dollars in profits from Europe to the tax haven of Bermuda.

Nike’s tax burden hasn’t been the same since. In the three years after that conference call, its after-tax profits would jump by an astounding 55 percent, to $1.88 billion, thanks in substantial part to a drop in its worldwide effective tax rate from 34.9 percent to 24.8 percent – on its way to 13.2 percent last year.

Nike’s tax planning over the years exemplifies how adept multinationals can be at staying ahead of the game. By building cross-border structures of interconnected companies that trade with one another, global businesses are often able to find ways of unlocking tax savings that no lawmaker intended them to receive. In many instances, these structures have no purpose other than to push global profits into offshore tax havens or into companies that are, for tax purposes, based nowhere at all.

Vital to Nike’s new arrangement was a Bermudan subsidiary, Nike International Ltd. Through it, the sportswear-maker held ownership of its iconic Swoosh design, together with other prized trademarks, for markets outside the United States.

The Bermudan subsidiary was able to charge trademark royalty fees to Nike’s European headquarters, in the Dutch town of Hilversum, which was selling sneakers and other sportswear to thousands of independent wholesalers and retailers as well as directly to customers through Nike’s own stores across Europe.

The royalty fees shifted billions in profits away from Europe, where they would otherwise have been taxed, and salted them away about 3,680 miles across the sea in tax-free Bermuda – where, the leaked documents reveal, Nike has no staff or offices but merely a few documents on file at the Bermudan corporate registry and at Appleby, a legal and corporate services firm.

Internal Appleby files show how much of Nike International’s affairs were run by senior executives, lawyers and accountants at Nike’s headquarters in Beaverton, Oregon. A duplicate of Nike International’s official seal – a stamp used to execute documents in significant transactions – was kept in Beaverton.

Nevertheless, for tax purposes, Nike International remained firmly Bermudan.

For years, enormous royalty payments to Bermuda went unmentioned in the accounts of Nike’s Dutch subsidiaries. The first clue as to the amount of money flowing offshore came last year when Nike made limited disclosures in a largely unrelated case in U.S. Tax Court. Court submissions included brief mention of royalty payments to Bermuda in 2010, 2011 and 2012. Together, they totaled $3.86 billion.

The flow of trademark royalties had helped Nike build a $6.6 billion pile of offshore profits by June 2014. This sum had been taxed at just 3 percent outside the United States. And because it remained offshore, it had yielded no U.S. tax at all.

In 2014, the generous 10-year deal that Nike received from Dutch tax authorities was about to expire. But Nike and its advisers, including the U.S. law firm Baker McKenzie, came up with a solution. With only a few adjustments, they realized, trademark payments could continue to flow out of Nike’s European headquarters with little or no tax.

After a reorganization of Nike’s tax-avoidance structure in 2014, its operations in Hilversum made royalty payments of $982 million in 2015 and $1.13 billion in 2016, company accounts show.

Under the revised structure, the Swoosh and other trademarks had been transferred from the Bermuda subsidiary to a new Dutch subsidiary, Nike Innovate CV.

The initials “CV” appear repeatedly in the leaked Appleby and Estera records, offering a glimpse at one of the most secretive and effective components in tax-avoidance strategies.

The Netherlands’ CV – which stands for “commanditaire vennootschap,” or limited partnership – is born out of legislation dating back to the 1830s. In recent times, it has proved popular with multinationals because, if set up carefully, it can escape Dutch taxes and taxes elsewhere, too.

In effect, a CV that is owned by partners outside the Netherlands can be entirely stateless, and as a result taxless. Many U.S. multinationals, therefore, set up non-Dutch holding companies that agree to form Dutch CVs.

This is how it works: Under the Dutch law, profits made through a CV are regarded as if they were made by the partners. As such, these earnings have been made outside the Netherlands and cannot be taxed there. Other countries, meanwhile, see the picture differently. They see Dutch CVs as much like regular companies and regard the taxing rights as belonging to the Dutch.

In tax-avoidance circles, this confusion is much sought after and is known as a “hybrid mismatch.”

According to an analysis of U.S. balance-of-payments data by Gabriel Zucman, an economist at the University of California, Berkeley, almost one in six dollars of foreign profit made by American multinationals last year was made – on paper at least – through Dutch subsidiaries.

Since switching property rights to the Swoosh and other trademarks from the Bermuda subsidiary to the Dutch partnership in 2014, Nike’s pile of offshore profits has continued to grow. At the end of May 2017, it had reached $12.2 billion. These accumulated earnings have been taxed at less than 2 percent by foreign tax authorities – and not at all in the United States.
Meanwhile, Parker, the Nike CEO, has also continued to prosper. For the last six years, he received compensation worth a total of nearly $144 million, in part for increasing profits and keeping taxes down.

Source – ICIJ, Contributors to this story: Helena Bengtsson

Reality views by sm –

Tuesday, November 7, 2017

Tags – Paradise Papers ICIJ NIKE No Tax USA