How to avoid paying tax with your logo !

08 November 2017  |   0 Comments   |    |  

When you want to avoid taxes,
there's nothing like a good logo!

To begin with, we remember that Nike paid Carolyn Davidson $35 to design its logo.
This was back in 1971, and there wasn't much reason to pay her more at the time: she was still a student! True, she could put that in her portfolio after all! (irony)

46 years on, the 'Paradise Papers' published by the International Consortium of Investigative Journalists (ICIJ) remind us that these multinationals have not forgotten to be selfish, exploiting the tiniest tax loopholes and setting up holding companies in Bermuda or the Netherlands!

As Le Monde sums up, "the American equipment manufacturer rakes in nearly 8.2 billion dollars a year in revenue from Europe, the Middle East and Africa. But it pays less than 2% tax on its profits, a far cry from the 25% average for European companies. Nike has been pulling this off since 2014, repatriating all its European income to a subsidiary in the Netherlands - nothing unusual until now for a multinational - which pays another Nike subsidiary the right to use... the Nike brand [aka the logo!], artificially 'drying up' its profits. The second subsidiary then takes advantage of a loophole in Dutch legislation (the 'CV-BV') whereby the Dutch tax authorities consider that the structure should be taxed in the United States, while the American tax authorities consider that it should be taxed in the Netherlands. As a result, Nike doesn't pay a cent in tax.

This tax arrangement is even more effective than the previous one, which involved Nike storing its profits in the Caribbean archipelago of Bermuda.

Nike in Bermuda

Nike is not the only brand to exploit these Bermudian or Dutch tax loopholes. In the 1980s, Ikea set up a complex network of holding companies and non-profit associations to avoid paying tax. One of these, Inter Ikea Systems BV, owned the 'Ikea' brand and was based in - you guessed it - the Netherlands!

Of the 500 largest companies listed on the US stock exchange, the ICIJ discovered more than 200 Dutch subsidiaries taking advantage of the trick. OK... that's normal... 2 out of 5 multinationals organise themselves to avoid paying tax. That said, it's possible that the term 'tax solidarity' hasn't yet been translated into English. As for French multinationals, there's no excuse, it's been in the dictionary since 1789.

In most of these situations, it is the intangible assets that are managed by these holding companies. In other words, when you buy a pair of trainers, your money goes from the shoe retailer to the Nike subsidiary that produces the shoes, which in turn pays royalties to the Dutch holding company for the use of the logo. In short, "Nike pays itself for the right to use its brand"!

A bit of Nikemathics...

So here's a quick calculation...

Value of the logo in 1971 : 35 $
Value of the logo in 2017 : 7 500 000 000 $

This represents an increase in value of 214,285,714% in 46 years.
4,658,385% per year. 12,762% per day. 531% per hour.

Never seen anything like it! My eyes are falling out!
At last we have an incredible KPI* for measuring the added value of branding ! We've been preaching "Good design is good business" for ages!

(*KPI : Key Performance Indicator. For those who don't speak the new language of marketing)

OK, so the calculation is as absurd as imagining that the Bermuda archipelago owes its geography to the design of the Nike logo. And yet...

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