EU to investigate McDonald’s tax deals with Luxembourg

EU competition regulators will investigate McDonald's tax deals with Luxembourg which enabled the US fast-food chain to escape paying taxes on European franchise royalties since 2009, in a move which could lead to hefty back taxes for the company.

The action by the European Commission comes two months after it ordered Luxembourg to recover up to €30 million from Fiat Chrysler and the Dutch to do the same for Starbucks because their tax deals were seen as unlawful aid.

A ruling on Apple’s tax situation in the Republic is expected next year.

The EU competition enforcer said McDonald’s had not paid any corporate taxes in Luxembourg or the US on royalties paid by franchisees in Europe and Russia since 2009 as a result of two tax rulings by the Luxembourg authorities.

"A tax ruling that agrees to McDonald's paying no tax on their European royalties either in Luxembourg or in the US has to be looked at very carefully under EU state aid rules," European Competition Commissioner Margrethe Vestager said.

Double taxation treaties

“The purpose of double taxation treaties between countries is to avoid double taxation - not to justify double non-taxation.”

Luxembourg’s finance ministry said the country had granted no special tax treatment nor selective advantage to McDonald’s and that it would cooperate fully with the investigation.

McDonald's said it complied with all tax rules in Europe and that its companies had paid more than €2.1 billion in corporate taxes in the European Union from 2010 to 2014, with an average tax rate of almost 27 per cent.

It also paid social, real estate and other taxes, while its independent franchises, operators of about 75 per cent of its outlets, paid corporate and other taxes.

“We are confident that the inquiry will be resolved favourably,” it said in a statement.

Reuters