EU Hits McDonald’s With Full-Blown Tax Investigation 

McDonalds

U.S. fast-food chain’s Luxembourg unit has paid ‘virtually’ no corporation tax on profits since 2009

European Union regulators confirmed Thursday they have opened a full-blown probe into McDonald’s Corp.’s tax affairs in Luxembourg, warning that a tax deal granted to the fast-food chain in 2009 may have illegally reduced its tax burden.

The move embroils a fourth U.S. multinational in a widening EU tax investigation that is a priority for policy makers in Brussels, but has drawn criticism from the U.S. government.

The European Commission, the bloc’s top antitrust regulator, said it would examine whether a 2009 tax ruling granted to a Luxembourg unit of the restaurant chain, McDonald’s Europe Franchising, had allowed it to avoid paying corporate tax in either Luxembourg or the U.S.

The unit, which collects royalty fees from McDonald’s franchisees across Europe and Russia, has paid no corporate tax in Luxembourg since 2009 despite recording large profits, including more than €250 million in 2013, the commission said.

Tax rulings are routinely used by multinational corporations to provide certainty about their future tax bills, but EU regulators worry they may have been used to allow some companies to underpay tax.

The commission’s preliminary view is that the Luxembourg ruling “may have granted McDonald’s an advantageous tax treatment in breach of EU” law, it said.

Luxembourg’s government said it would “fully cooperate” with the investigation and that it “considers that no special tax treatment nor selective advantage have been granted to McDonald’s.”

McDonald’s said in a statement on Thursday that it “complies with all tax laws and rules in Europe” and is “confident that the inquiry will be resolved favorably.”

“From 2010-2014, the McDonald’s Companies paid more than $2.1 billion just in corporate taxes in the European Union, with an average tax rate of almost 27%,” the company said.

The EU’s antitrust chief, Margrethe Vestager, said McDonald’s tax arrangement “has to be looked at very carefully.”

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

The tax investigations are a high priority for policy makers in Brussels, who have opened five similar tax investigations over the past 18 months. Regulators are currently probing tax deals struck by Amazon.com Inc. in Luxembourg and Apple Inc. in Ireland, as well as a Belgian tax discount plan that has benefited Anheuser-Busch InBev NV and a number of other Belgian-based multinationals.

Two other probes, into Starbucks Corp.’s tax affairs in the Netherlands and Fiat Chrysler Automobiles NV in Luxembourg, were closed in October. The EU ruled then that Starbucks and Fiat had benefited from illegal tax deals and ordered the governments to reclaim between €20 million and €30 million from each company.

Both decisions are expected to be appealed at the EU’s courts in Luxembourg, a process that can take years.

All of the governments involved have denied giving special treatment, and the companies have denied receiving it. Starbucks and the Dutch government have confirmed they will appeal the decision.

In the latest probe, the EU is zeroing in on two tax rulings that it says allowed McDonald’s Luxembourg unit to exempt its profits from tax in Luxembourg, even though local authorities knew they weren’t being taxed in the U.S. either.

A first tax ruling in March 2009 confirmed the unit wouldn’t pay corporate tax in Luxembourg on the grounds that the profit should be taxed in the U.S., under a double taxation treaty between the two countries. It required McDonald’s to submit proof every year that royalties transferred to the U.S. through Switzerland were taxed in those two countries.

The company subsequently sought, and was granted, a second tax ruling stipulating that its profit be exempted from Luxembourg taxes even if they weren’t taxed in the U.S., the commission said.

The EU’s move comes two days after a senior U.S. Treasury official expressed deep concern about the EU’s tax investigations.

“We are concerned that the EU Commission appears to be disproportionately targeting U.S. companies,” Robert B. Stack, the Treasury’s deputy assistant secretary for international tax affairs, told members of the Senate Finance Committee on Tuesday.

Source: WSJ – EU Hits McDonald’s With Full-Blown Tax Investigation

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