McDonald’s tax affairs under scrutiny in Europe

Fast food chain McDonald’s is being investigated by the European Commission over its Luxembourg tax arrangements known as “sweetheart deals”.

McDonald’s Europe Franchising, a large part of the group, has paid no corporate tax in Luxembourg since 2009 when it moved its European headquarters there.

Luxembourg exempts the company from tax, ruling that almost all its profits are generated through the group’s US operation.

The US makes no demands as it regards the company as registered in Luxembourg and rules that tax should be that country’s responsibility.

Consequently, McDonald’s Europe Franchising can escape corporate tax on its profits, which in 2013 alone were €250m ($273m, £188m).

Margrethe Vestager, the European competition commissioner, said: “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. The purpose of double taxation treaties between countries is to avoid double taxation, not to justify double non-taxation.”

Luxembourg’s finance ministry said: “[We] consider that no special tax treatment nor selective advantage has been granted to McDonald’s. Luxembourg will fully co-operate with the Commission.”

The company claimed it observed all European tax laws and that from 2010 to 2014 it paid more than $2.1bn (£1.44bn, €1.92bn) in corporate tax in the EU.

Huge amounts are at stake. If the Commission decides Luxembourg has granted unlawful state aid to McDonald’s Europe Franchising, profits since 2009 will be taxed.

This kind of avoidance is the speciality of international planners who create complex corporate structures using differences between countries’ systems to minimise multinationals’ tax liabilities, usually completely legally.