latest-news-headlines Market Intelligence /marketintelligence/en/news-insights/latest-news-headlines/49290008 content
BY CONTINUING TO USE THIS SITE, YOU ARE AGREEING TO OUR USE OF COOKIES. REVIEW OUR
PRIVACY & COOKIE NOTICE
Log in to other products

Login to Market Intelligence Platform

 /


Looking for more?

Contact Us

Request a Demo

You're one step closer to unlocking our suite of comprehensive and robust tools.

Fill out the form so we can connect you to the right person.

  • First Name*
  • Last Name*
  • Business Email *
  • Phone *
  • Company Name *
  • City *

* Required

In this list

EU launches in-depth probe into Dutch tax treatment of Nike

Segment

IFRS 9 Impairment How It Impacts Your Corporation And How We Can Help

The Market Intelligence Platform


EU launches in-depth probe into Dutch tax treatment of Nike

Europe's competition regulator has opened an in-depth investigation to determine whether the Netherlands' tax treatment of U.S. footwear company Nike Inc. constituted illegal state aid.

The probe, disclosed Jan. 10, is the latest move by the European Commission in its effort to tackle what it describes as selective advantages to specific companies, which it said can distort competition within the single European market.

If the Dutch tax treatment is found to breach European Union rules on state aid, Nike could be required to repay any benefits that it received. The European Commission has required member states to recover billions of euros from companies since it started its campaign in 2013. Most notably, Ireland has recovered €14.3 billion from Apple Inc., and Luxembourg has been reimbursed €282.7 million by Amazon.com Inc., the commission said.

"Member states should not allow companies to set up complex structures that unduly reduce their taxable profits and give them an unfair advantage over competitors," Margrethe Vestager, the European commissioner in charge of competition policy, said in a statement.

In a statement emailed to S&P Global Market Intelligence, a Nike spokesperson said the company believed 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 spokesperson said.

The commission's investigation of Nike focuses on the tax treatment in the Netherlands of two entities, Nike European Operations Netherlands BV and Converse Netherlands BV, operating companies that develop, market and record sales of Nike and Converse products in Europe, the Middle East and Africa.

The Nike entities obtained licenses to use intellectual property rights relating to Nike and Converse goods in the EMEA region in exchange for royalty payments to Nike group companies that were not taxable in the Netherlands. The method to calculate the royalty paid by Nike European Operations Netherlands and Converse Netherlands was endorsed by five rulings by Dutch tax authorities between 2006 and 2015, two of which remain in force.

Nike European Operations Netherlands and Converse Netherlands are taxed in the Netherlands only on a limited operating margin based on sales, according to the commission, which said the royalty payments to the nontaxable Nike group companies "may not reflect economic reality."

The royalty payments "appear to be higher than what independent companies negotiating on market terms would have agreed between themselves in accordance with the arm's length principle," the commission said.

The Nike group companies that receive royalty payments have no employees and "do not carry out any economic activity," the commission added.

Vestager, the competition commissioner, welcomed Dutch plans to reform taxation rules. European competition authorities are also investigating Dutch tax rulings in favor of Inter Ikea Holding BV.


Credit Analysis
IFRS 9 Impairment How It Impacts Your Corporation And How We Can Help

IFRS 9 is a reporting standard for financial instruments that replaces IAS39 (the previous incurred loss standard) with the introduction of provisions for expected credit losses (ECLs) on all financial assets, such as those held to collect contractual cash flows, or held with the possibility of being sold.

The date for adoption was January 1, 2018 and is mandatory for public non-financial corporations (and financial institutions) across a number of jurisdictions outside the United States, including many European countries.

The two key changes introduced by the IFRS 9 accounting standard are:

  • Calculation and provisions must be performed on all affected financial assets, not just the impaired ones, as per the standard it replaces
  • New expected credit loss calculations

Additional challenges will be presented when making assessments for low default asset classes, and companies may find it difficult to access models and sufficient data history.

Impact for non-financial corporations

Non-financial corporations will have some material exposure to many of the financial assets that are defined under IFRS 9. These include investment portfolios, intercompany loans, lease receivables, contract assets, and trade receivables, as illustrated below and further explained in our webinar on IFRS 9 for non-financial corporates.

This, together with the need to assess losses on performing and non-performing assets, might have a material impact on the profit and loss (P&L) of such companies.

ECL calculations under IFRS 9

The IFRS 9 accounting standard introduces new expected credit loss (ECL) calculations that require more data and new models. The key requirements are:

  • Significant increase in credit risk (SICR): Expected loss needs to be assessed at each reporting period to identify a SICR since initial recognition
  • Explicit macro-economic forecasts need to be considered using factors such as the relevant GDP growth, unemployment rate, and stock market index growth figures
  • Credit risk metrics such as probability of default (PD), credit rating, credit score, and loss given default (LGD) need to be adjusted to point in time (PiT), versus through the cycle (TTC)
  • Calculations need to be extended over the lifetime of the assets for underperforming exposures, or in standardized calculations

General versus simplified approach

When performing ECL calculations for trade receivables, the company can choose to take a general or simplified approach (the company is presented with a choice between the two depending on the type of exposure).

  • The general approach uses the 12-month ECL calculation for performing assets (Stage 1 assets) and lifetime calculation for the assets whose creditworthiness has deteriorated since recognition (Stage 2 assets)
  • The simplified approach uses the lifetime ECL calculation for all performing and non-performing assets

The simplified approach can have a bigger impact on P&L expense, as all losses are calculated over the lifetime of the asset, while the general approach can have more impact on P&L volatility, as assets might move between stages incurring 12-month and lifetime calculations.

How S&P Global Market Intelligence can help

A best practice approach used by many financial institutions, which non-financial corporations can also use to comply with the new provision, is to use the existing TTC metrics and convert them into PiT metrics to reflect the current credit cycle, as well as include the required future macroeconomic considerations.

S&P Global Market Intelligence has developed models and tools to help your business undertake the relevant ECL calculations. These models can also be used to assess the creditworthiness of your counterparties and recovery of your exposure in the context of your core business process such as customer credit, supply chain risk, vendor management, and selection and transfer pricing.

The calculation method involves four steps:

  1. We calculate the TTC metric, i.e. the S&P Global Market Intelligence Fundamental PD, CreditModel™ score, for the concerned entity.
  2. We apply our macro-economic model, which weights user defined macro-economic scenarios to produce weighted average forecasted PDs.
  3. We apply a credit cycle adjustment, which converts the TTC risk metric into a PiT PD, leveraging the difference between observed default rates from S&P Global Ratings’ rated universe over last year versus over the past 30+ years.
  4. In addition, as a best practice, we also offer the option to incorporate market-based forward looking information. This is done by further adjusting the PD with the analysis of PD Market Signals country and industry benchmark trends over the past three months versus the past year.

In addition to this quantitative approach available on the Credit Analytics platform, we also offer scorecards that cover low default asset classes for PD, LGD, and point in time adjustments.

Learn More About Credit Analysis
Request a demo

Watch: The Market Intelligence Platform

Highlights

Expressly designed with your workflow in mind.

The new Market Intelligence platform puts a world of information at your fingertips, allowing you to make strategic business decisions with conviction, speed, and laser-focused insight. Essential information you need, when you need it. That’s the power of Market Intelligence.

Learn more about the Market Intelligence Platform.