European authorities are investigating whether the Dutch government illegally allowed Beaverton’s Nike to avoid paying taxes on profits from sales in the region, potentially exposing the company to huge penalties similar to those imposed on Apple and Amazon.
The inquiry, announced Thursday, is part of a broader European Commission crackdown on countries such as Ireland, Luxembourg and the Netherlands over accusations that they gave questionable tax breaks to multinational companies, many of them based in the United States, as a way of attracting corporate headquarters and white-collar jobs.
Similar investigations resulted in an order that Apple pay 14.3 billion euros, or $16.5 billion, to the Irish government in 2016 and a requirement that Amazon pay 283 million euros to Luxembourg in 2017.
Starbucks paid 25.7 million euros to the Netherlands in 2015, and an investigation into Ikea is underway.
The Dutch Finance Ministry said Thursday it was cooperating with the investigation. “We fully support the work of the commission,” the ministry said.
Nike said in a statement that the investigation was “without merit.”
“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.
The Netherlands has long been a magnet for multinational corporations, attracting more foreign investment than Germany or France because of its business-friendly tax laws and its accommodating officials.
Big companies have typically worked out arrangements with the Dutch Finance Ministry under which they minimized their tax bills by funneling profits to offshore tax havens with little or no corporate taxes. About 22 billion euros a year flow through the Netherlands to low-tax countries, according to the ministry, which did not provide an estimate of how much Nike might have saved.
Airbus, Fiat Chrysler, Google, IBM and the Renault-Nissan alliance are among the corporations that have headquarters in the Netherlands. Nike’s European headquarters are in Hilversum, just south of Amsterdam.
The Netherlands has come under pressure from the European Commission and Dutch citizens disgruntled about special favors for big companies. Officials in Amsterdam have responded by vowing to tighten rules that allow companies to camouflage profits as “royalties” and protect them from taxes.
Dutch officials have also said they would no longer approve corporate structures that allowed companies to steer profits to low-tax countries and that royalties would be subject to taxation starting in 2021. The Netherlands is also moving to eliminate inconsistencies in international tax laws that corporations can exploit to avoid taxes.
Nike’s tax practices in the Netherlands have drawn scrutiny before. It used a common method of shifting profits to a tax haven, according to research published in 2017 by the International Consortium of Investigative Journalists based on leaked documents known as the Paradise Papers.
First, Nike allocated ownership of its “swoosh” trademark and other intellectual property to a subsidiary in Bermuda, which has no corporate income tax. The subsidiary in Hilversum then paid royalties for the use of the trademarks to the Bermuda unit. The royalties counted as business expenses and therefore were not taxed in the Netherlands.