Vestager opens probe into McDonald’s EU taxes

Firm made €250 million profit in 2013, but paid virtually no taxes.

The European Commission on Thursday accused Luxembourg of illegally helping McDonald’s avoid taxes on hundreds of millions of euros in profits.

Commission officials opened a formal inquiry into a 2009 tax deal between McDonald’s and Luxembourg. They allege the Grand Duchy, whose prime minister and finance minister at the time was European Commission President Jean-Claude Juncker, exempted a McDonald’s subsidiary from taxes, despite knowing it was not paying taxes on the money in the U.S.

“McDonald’s Europe franchising [subsidiary] has virtually not paid any corporate tax in Luxembourg nor in the U.S. on its profits since 2009,” the commission said in a statement. The deal not only may have given McDonald’s an unfair edge over rivals, but also may have breached European laws on state aid.

Earlier this year a coalition of European and U.S. trade unions and anti-poverty campaigners denounced McDonald’s to the Commission. A report they published estimated McDonald’s skirted €1 billion in taxes from 2009 to 2013.

“For too long, McDonald’s has stashed billions in tax havens and ducked contributing to state coffers while simultaneously imposing poverty wages on its workers,” said Scott Courtney, organizing director at the Service Employees International Union.

In response, Luxembourg maintains that no special tax treatment nor selective advantage have been granted to McDonald’s. The government said it would cooperate fully.

McDonald’s, for its part, claims it complies with all tax laws in Europe and shelled out $2.1 billion in the EU from 2010-2014, with an average tax rate of almost 27 percent.

“We are confident that the inquiry will be resolved favorably,” the company said in a statement.

The hamburger giant is the fourth U.S. multinational targeted over the past 18 months for potentially dodging European taxes.

Margrethe Vestager, commissioner for competition, is expected to weigh in early next year on the tax arrangements Apple has in Ireland and Amazon has in Luxembourg.

In October, she ordered the Netherlands to recover up to €30 million in back taxes from Starbucks.

This is also the second time she has targeted Luxembourg. In October, she told the country’s tax collectors to send a bill of up to €30 million to a Fiat subsidiary.

Meanwhile, her team is examining Belgian tax pacts with dozens of firms, including beer maker ABInbev and HSBC.

“The European Commission is trying to solve the crisis in the European tax system by taking on one multinational corporation at a time. What we need is a fundamental review of the tax system,” said Tove Ryding, tax justice coordinator for the European Network on Debt and Development.

The McDonald’s case involves a tax ruling that exempted the Europe franchising subsidiary from paying taxes on profits in Luxembourg on the grounds they were taxed in the U.S. In fact, the Illinois-based company did not pay taxes on that money in America, yet Luxembourg again ruled McDonald’s profits were not subject to tax.

This story has been updated to add breaking news developments.

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