Tuesday

12th Dec 2017

Commission opens McDonald's tax probe

  • The fast-food giant dodged taxes in the EU and the US after a deal with Luxembourg. (Photo: Steve Baker)

The European Commission opened a formal probe against McDonalds Thursday (3 December) over tax deals with Luxembourg that resulted in the US fast-food giant not paying taxes in Europe or in the US.

Under two tax-rulings issued by Luxembourg authorities in March and September 2009, McDonald's Europe Franchising was exempted from paying taxes in the Grand Duchy, where the McDonalds subsidiary was registered.

Thank you for reading EUobserver!

Subscribe now for a 30 day free trial.

  1. €150 per year
  2. or €15 per month
  3. Cancel anytime

EUobserver is an independent, not-for-profit news organization that publishes daily news reports, analysis, and investigations from Brussels and the EU member states. We are an indispensable news source for anyone who wants to know what is going on in the EU.

We are mainly funded by advertising and subscription revenues. As advertising revenues are falling fast, we depend on subscription revenues to support our journalism.

For group, corporate or student subscriptions, please contact us. See also our full Terms of Use.

If you already have an account click here to login.

In addition to its Luxembourg main office, McDonald's Europe Franchising has a Swiss branch, which the commission says "has a limited activity related to the franchising rights" and a US branch, "which does not have any real activities".

The tax deal was about profits made from "royalties paid by franchisees operating restaurants in Europe and Russia for the right to use the McDonald's brand," the commission explains in a statement.

In 2013, for example, these profits reached €250 million.

A first tax ruling was granted on the ground that profits would be subject to taxation in the US, in conformity to the Luxembourg-US double taxation Treaty.

"Under the ruling, McDonald's was required to submit proof every year that the royalties transferred to the US via Switzerland were declared and subject to taxation in the US and Switzerland," the Commission says.

However McDonalds told Luxembourg tax authorities that it did not pay taxes in the US because McDonald's Europe Franchising did not have any taxable presence in the US under US law.

Despite this admission, McDonald's Europe Franchising was granted a second tax ruling.

"With the second ruling, Luxembourg authorities accepted to exempt almost all of McDonald's Europe Franchising's income from taxation in Luxembourg," the Commission says.

Double non-taxation

The commission thinks that the deal, which was done when Jean-Claude Juncker, the current commission president, was Luxembourg's prime minister, could constitute a breach of EU state aid rules.

"The purpose of double taxation treaties between countries is to avoid double taxation – not to justify double non-taxation," competition commissioner Margrethe Vestager said in the commission statement.

The commission will now "assess whether Luxembourg authorities selectively derogated from the provisions of their national tax law and the Luxembourg-US double treaty and whether thereby the Luxembourg authorities gave McDonalds an advantage not available to other companies in a comparable factual and legal situation."

The McDonalds sweetheart deal with Luxembourg was among the cases revealed in the so-called LuxLeaks file published by media outlets in 2014, along with other multinational companies such as Ikea, FedEx, Disney and Microsoft.

The commission has already launched investigations into tax deals between online retailer Amazon and Luxembourg and between IT firm Apple and Ireland, as well as on the Belgium system of "excess profit"'.

In October, coffee company Starbucks and automaker Fiat were sentenced to pay back between 20 and 30 million euros in taxes to Luxembourg and the Netherlands after the Commission ruled that their tax deals amounted to unfair state aid.

The McDonalds probe comes a day after a European Parliament special committee on tax rulings was extended for six months Wednesday.

The committee, which was created after the LuxLeaks revelations and is chaired by French centre-right MEP Alain Lamassoure, is looking at how companies and EU states comply with tax legislation.

It has so far investigated tax rulings in Luxembourg and the role of former PM Jean-Claude Juncker. It also grilled multinational executives about their tax avoidance strategies.

The committee's mandate will now end in June 2016.

Juncker denies role in tax scams

EU Commission chief Juncker says he had nothing to do with Luxembourg's sweetheart tax deals in his time as PM of the microstate.

EU blacklists 17 tax havens, avoids sanctions

Finance ministers pointed out 'non-cooperative' entities and set up a second 'grey' list of more than 40 countries that have promised to improve their tax practices.

News in Brief

  1. EU to Israel: Don't expect us to move embassies
  2. EU Commission condemns anti-semitic 'Jerusalem' protests
  3. Ministers have 'lots of questions' on new CAP plans
  4. Commission: Brexit agreement is 'deal between gentlemen'
  5. 25 EU states sign defence cooperation pact
  6. Netanyahu wants 'hardy' talks with EU on Jerusalem
  7. French centre-right elects new leader
  8. Germany and UK increase arms sales

Stakeholders' Highlights

  1. ACCACFOs Risk Losing Relevance If They Do Not Embrace Technology
  2. UNICEFMake the Digital World Safer for Children & Increase Access for the Most Disadvantaged
  3. European Jewish CongressWelcomes Recognition of Jerusalem as the Capital of Israel and Calls on EU States to Follow Suit
  4. Mission of China to the EUChina and EU Boost Innovation Cooperation Under Horizon 2020
  5. European Gaming & Betting AssociationJuncker’s "Political" Commission Leaves Gambling Reforms to the Court
  6. AJC Transatlantic InstituteAJC Applauds U.S. Recognition of Jerusalem as Israel’s Capital City
  7. EU2017EEEU Telecom Ministers Reached an Agreement on the 5G Roadmap
  8. European Friends of ArmeniaEU-Armenia Relations in the CEPA Era: What's Next?
  9. Mission of China to the EU16+1 Cooperation Injects New Vigour Into China-EU Ties
  10. EPSUEU Blacklist of Tax Havens Is a Sham
  11. EU2017EERole of Culture in Building Cohesive Societies in Europe
  12. ILGA EuropeCongratulations to Austria - Court Overturns Barriers to Equal Marriage

Latest News

  1. Alignment with EU is 'last resort', May tells MPs
  2. Iceland: further from EU membership than ever
  3. Israel presses Jerusalem claim in EU capital
  4. From dark coal toward a brighter future
  5. UK casts doubt on EU deal in 'bizarre' twist
  6. Romania wants EU signal on Schengen membership
  7. Germany says China using LinkedIn to recruit informants
  8. No chance of expanding EU warrant crime list

Stakeholders' Highlights

  1. Centre Maurits CoppietersCelebrating Diversity, Citizenship and the European Project With Fundació Josep Irla
  2. European Healthy Lifestyle AllianceUnderstanding the Social Consequences of Obesity
  3. Union for the MediterraneanMediterranean Countries Commit to Strengthening Women's Role in Region
  4. Bio-Based IndustriesRegistration for BBI JU Stakeholder Forum about to close. Last chance to register!
  5. European Heart NetworkThe Time Is Ripe for Simplified Front-Of-Pack Nutrition Labelling
  6. Counter BalanceNew EU External Investment Plan Risks Sidelining Development Objectives
  7. EU2017EEEAS Calls for Eastern Partnership Countries to Enter EU Market Through Estonia
  8. Dialogue PlatformThe Turkey I No Longer Know
  9. World Vision7 Million Children at Risk in the DRC: Donor Meeting to Focus on Saving More Lives
  10. EPSU-Eurelectric-IndustriAllElectricity European Social Partners Stand up for Just Energy Transition
  11. European Friends of ArmeniaSignature of CEPA Marks a Fresh Start for EU-Armenia Relations
  12. Nordic Council of MinistersNordic Energy Ministers Pledge to Work More Closely at Nordic and EU Level