The European Commission has launched an investigation into the corporate tax affairs ofMCDonald’s in Luxembourg.
The investigation will focus on McDonald's tax deals with Luxembourg. The European Commission says the deals allowed McDonald's to avoid paying taxes in both Luxembourg and the US on royalties from Europe and Russia.
MCDonald’s became the fourth U.S. multinational to be targeted by European Union regulators as part of a widening investigation into alleged illegal tax deals.
Under the Luxembourg-US Double Taxation Treaty, McDonald's has been exempt from paying tax on the income from its franchising business in Europe based on the understanding that these revenues are taxed in the US.
However, a tax ruling six years ago determined that McDonald's did not have to prove that it was paying taxes on this income in the US.
However, a tax ruling six years ago determined that McDonald's did not have to prove that it was paying taxes on this income in the US.
According to the commission, the McDonald's Europe Franchising, the company that manages the restaurant chain's franchise licenses in Europe, has virtually not paid anycorporate tax in Luxembourg nor in the US on its profits since 2009.
"A tax ruling that agrees to McDonald's paying no tax on its European royalties either in Luxembourg or in the US has to be looked at very carefully under EU state aid rules," said Margrethe Vestager, European Commissioner for Competition.
"The purpose of Double Taxation treaties between countries is to avoid double taxation – not to justify double non-taxation."
If regulators decide McDonald’s did benefit from an illegal arrangement, the company could be required to repay a significant amount of back taxes.
The EU has been examining whether companies including Amazon.com Inc. and Apple Inc. have benefited from illegal tax deals in Europe that allegedly shift profits from one corporate division to another to avoid tax.
