McDonald's faces European tax probe

The European Commission has opened an investigation into the tax affairs of US fast food chain McDonald's.

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.

It follows similar investigations into tax deals made by US coffee shop Starbucks and online retailer Amazon with some authorities in Europe.

The Commission said two tax rulings given by the Luxembourg authorities in 2009 had allowed McDonald's Europe Franchising to pay no corporation tax in Luxembourg since then, despite recording large profits. It added that in 2013, McDonald's profits were more than €250m (£177m).

Commissioner Margrethe Vestager, in charge of EU competition policy, 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."

A McDonald's statement said: "McDonald's complies with all tax laws and rules in Europe and pays a significant amount of corporate income tax. In fact, from 2010-14, the McDonald's companies paid more than $2.1bn just in corporate taxes in the European Union, with an average tax rate of almost 27%.

"Additionally, we pay social, real estate and other taxes. Our independent franchisees, who own and operate approximately 75% of our restaurants in Europe, also pay corporate tax and many other taxes.

"We are confident that the inquiry will be resolved favourably."

Under the first tax ruling in March 2009, tax authorities in Luxembourg agreed to allow McDonald's to pay no corporation tax on its European earnings in the country, as long as McDonald's could prove that it paid tax on those earnings in the US each year.

This was done to avoid McDonald's becoming subject to double taxation in the EU and the US.

It was subsequently discovered that McDonald's earnings in the EU were not registered in the US for tax purposes, leaving McDonald's no way to prove it had paid tax on its European royalties there.

A second tax ruling in September allowed McDonald's to pay no tax in Luxembourg on its European earnings, without needing to prove it paid tax on those earnings in the US. The Commission said it planned to investigate whether this amounted to state aid.

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