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| Version 2 | Version 3 |
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| Revealed: how Nike stays one step ahead of the taxman | Revealed: how Nike stays one step ahead of the taxman |
| (about 13 hours later) | |
| Money paid for trainers in shops moves in and out of Europe, to Caribbean and even to entities not officially based anywhere | |
| Nick Hopkins and | |
| Simon Bowers | |
| Mon 6 Nov 2017 18.15 GMT | |
| Last modified on Tue 19 Dec 2017 13.55 GMT | |
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| Everyone knows Nike. Most people probably own a pair of Nikes. | Everyone knows Nike. Most people probably own a pair of Nikes. |
| It is unquestionably one of the best-known brands in the world, making billions of dollars in profit from global trainer sales. With names such as Swoosh, Flight, Force, Tailwind and Pegasus, every shoe is crafted, and every launch anticipated and heavily marketed. | It is unquestionably one of the best-known brands in the world, making billions of dollars in profit from global trainer sales. With names such as Swoosh, Flight, Force, Tailwind and Pegasus, every shoe is crafted, and every launch anticipated and heavily marketed. |
| This is a company that stays one step ahead of its rivals. And one step ahead of the taxman, too. | This is a company that stays one step ahead of its rivals. And one step ahead of the taxman, too. |
| Thanks to documents in the Paradise Papers, it has been possible to piece together the schemes and structures that have helped Nike over the past decade. It is a story involving grey areas and loopholes, tax havens and zero tax rates, and the movement of money and royalties from one jurisdiction to the next. | Thanks to documents in the Paradise Papers, it has been possible to piece together the schemes and structures that have helped Nike over the past decade. It is a story involving grey areas and loopholes, tax havens and zero tax rates, and the movement of money and royalties from one jurisdiction to the next. |
| At the end of this journey is a limbo land beyond the reach of tax authorities. For the companies that know how to work the system, this is sensible and legal. For campaigners who insist the system is unfair, it is ridiculous. | At the end of this journey is a limbo land beyond the reach of tax authorities. For the companies that know how to work the system, this is sensible and legal. For campaigners who insist the system is unfair, it is ridiculous. |
| Either way, it means money paid for trainers in cities such as London, Paris, Berlin and Madrid has ended up flowing in and out of Europe, on its way to the Caribbean, or to entities that are in effect stateless. And that is all apparently above board as far as tax authorities are concerned. | Either way, it means money paid for trainers in cities such as London, Paris, Berlin and Madrid has ended up flowing in and out of Europe, on its way to the Caribbean, or to entities that are in effect stateless. And that is all apparently above board as far as tax authorities are concerned. |
| Nike did this with the help of smart lawyers, complex laws and compliant governments. Here, we break down exactly how. | Nike did this with the help of smart lawyers, complex laws and compliant governments. Here, we break down exactly how. |
| Nike shoes are made in countries such as Vietnam and Indonesia. From there, they are shipped to the company’s futuristic, fortress-style warehouse in Belgium. The Laakdal “logistics” hub is a sneaker storeroom on a monumental scale. When shops need shoes, they come from here. | Nike shoes are made in countries such as Vietnam and Indonesia. From there, they are shipped to the company’s futuristic, fortress-style warehouse in Belgium. The Laakdal “logistics” hub is a sneaker storeroom on a monumental scale. When shops need shoes, they come from here. |
| Buy a pair of shoes in, say, London, and one would expect the cash to go to the company’s main British subsidiary, Nike UK Ltd. That would make sense, but that is not what happens. The money from sales of shoes flows out of the UK to the Netherlands. | Buy a pair of shoes in, say, London, and one would expect the cash to go to the company’s main British subsidiary, Nike UK Ltd. That would make sense, but that is not what happens. The money from sales of shoes flows out of the UK to the Netherlands. |
| The Netherlands is significant. In particular, two companies are at the heart of Nike’s Dutch operations. They pay some tax on the near $8bn (£6bn) of revenue they receive from Nike sales across Europe, the Middle East and Africa. | The Netherlands is significant. In particular, two companies are at the heart of Nike’s Dutch operations. They pay some tax on the near $8bn (£6bn) of revenue they receive from Nike sales across Europe, the Middle East and Africa. |
| However, from 2005 until 2014, Nike was able to shift vast sums of money out of the Netherlands to Bermuda, which is an offshore tax haven with zero tax. Nike did this through a Bermudan subsidiary, Nike International Ltd, which held the company’s intellectual property rights for its sneaker brands – the crown jewels of the Nike empire. Even though this subsidiary did not appear to have any staff or offices in Bermuda, it charged large trademark royalty fees each year to Nike’s European HQ for selling its trainers. The fees allowed Nike to legally shift profits away from Europe to Nike International Ltd. | However, from 2005 until 2014, Nike was able to shift vast sums of money out of the Netherlands to Bermuda, which is an offshore tax haven with zero tax. Nike did this through a Bermudan subsidiary, Nike International Ltd, which held the company’s intellectual property rights for its sneaker brands – the crown jewels of the Nike empire. Even though this subsidiary did not appear to have any staff or offices in Bermuda, it charged large trademark royalty fees each year to Nike’s European HQ for selling its trainers. The fees allowed Nike to legally shift profits away from Europe to Nike International Ltd. |
| In 2014, Nike had to think again. With the deal from the Netherlands due to expire, the company came up with a new plan, again with the agreement of Dutch authorities. This involved moving the company’s intellectual property from Nike International Ltd in Bermuda to yet another subsidiary, Nike Innovate CV. This entity is not based in Bermuda. It is not actually based anywhere. | In 2014, Nike had to think again. With the deal from the Netherlands due to expire, the company came up with a new plan, again with the agreement of Dutch authorities. This involved moving the company’s intellectual property from Nike International Ltd in Bermuda to yet another subsidiary, Nike Innovate CV. This entity is not based in Bermuda. It is not actually based anywhere. |
| How does it work? It is complex – and controversial. The “CV” model allows Nike Innovate to avoid paying local taxes in the Netherlands. Nike Innovate is not being taxed anywhere else, either. Nike is not the only multinational to use the CV model. Many of the US’s largest multinationals use similar subsidiaries. | How does it work? It is complex – and controversial. The “CV” model allows Nike Innovate to avoid paying local taxes in the Netherlands. Nike Innovate is not being taxed anywhere else, either. Nike is not the only multinational to use the CV model. Many of the US’s largest multinationals use similar subsidiaries. |
| So, Nike Innovate CV is a treasure indeed. It is seemingly beyond the reach of Dutch tax authorities, and it is out of range for the US taxman, even though Nike is a US-registered company with headquarters in Portland, Oregon. Nike Innovate does not seem to have tax residency anywhere in the world. | So, Nike Innovate CV is a treasure indeed. It is seemingly beyond the reach of Dutch tax authorities, and it is out of range for the US taxman, even though Nike is a US-registered company with headquarters in Portland, Oregon. Nike Innovate does not seem to have tax residency anywhere in the world. |
| The CV model, and the one that preceded it in Bermuda, appear to have helped Nike substantially reduce its global tax rate. In May, Nike’s offshore mountain of accumulated profits was worth more than $12bn. And its global tax rate has fallen from 34.9% in 2007 to 13.2% last year. | The CV model, and the one that preceded it in Bermuda, appear to have helped Nike substantially reduce its global tax rate. In May, Nike’s offshore mountain of accumulated profits was worth more than $12bn. And its global tax rate has fallen from 34.9% in 2007 to 13.2% last year. |
| Nike was asked about these arrangements. It said: “Nike fully complies with tax regulations and we rigorously ensure our tax filings are fully aligned with how we run our business, the investments we make and the jobs we create. Nike’s European headquarters has been based in the Netherlands since 1999. It employs more than 2,500 people, who oversee Nike operations in over 75 countries.” | Nike was asked about these arrangements. It said: “Nike fully complies with tax regulations and we rigorously ensure our tax filings are fully aligned with how we run our business, the investments we make and the jobs we create. Nike’s European headquarters has been based in the Netherlands since 1999. It employs more than 2,500 people, who oversee Nike operations in over 75 countries.” |
| But Nike and other multinationals are under pressure. The Organisation for Economic Co-operation and Development has been trying to shut down the Dutch CV model, known in the trade as as the “reverse hybrid mismatch”. And it will be phased out. Under the EU’s anti-tax-avoidance directive, Nike may have to find a new way of funnelling its money by 2021, or pay more tax than it does at the moment. | But Nike and other multinationals are under pressure. The Organisation for Economic Co-operation and Development has been trying to shut down the Dutch CV model, known in the trade as as the “reverse hybrid mismatch”. And it will be phased out. Under the EU’s anti-tax-avoidance directive, Nike may have to find a new way of funnelling its money by 2021, or pay more tax than it does at the moment. |
| So far, Nike has stayed one step ahead. The race is on again. | So far, Nike has stayed one step ahead. The race is on again. |
| Nike | |
| Paradise Papers | |
| Netherlands | |
| Tax avoidance | |
| Europe | |
| Retail industry | |
| Tax havens | |
| analysis | |
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