E.U. Investigates McDonald’s Tax Deal With Luxembourg

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BRUSSELS — The European Union authorities on Thursday opened a formal investigation into whether Luxembourg granted McDonald’s overly generous tax breaks.

[ by James Kanter | December 03, 2015 | The New York Times ]

The move is the latest sign that Margrethe Vestager, the bloc’s competition commissioner, is determined to widen a crackdown on corporate tax avoidance that has already ensnared three companies with operations in Luxembourg, a tiny European Union member state that has grown rich on financial services during recent decades.

Ms. Vestager said she was examining whether Luxembourg’s authorities had deviated from their national tax law and from a tax treaty between Luxembourg and the United States.

“A tax ruling that agrees to McDonald’s paying no tax on their European royalties either in Luxembourg or in the U.S. has to be looked at very carefully under E.U. state aid rules,” Ms. Vestager said in a statement. “The purpose of double taxation treaties between countries is to avoid double taxation — not to justify double nontaxation.”

Luxembourg’s Ministry of Finance described the decision by Ms. Vestager as “preliminary” and said it would fully cooperate in the investigation.

“Luxembourg considers that no special tax treatment nor selective advantage have been granted to McDonald’s,” the ministry said in a statement.

In October, Ms. Vestager ordered Luxembourg to recover up to 30 million euros, or about $31.8 million, from Fiat Finance and Trade, and she is still investigating the country for its tax treatment of Amazon.

Fiat has said that its financing unit had not received any state aid from Luxembourg.

Also in October, Ms. Vestager ordered the Netherlands to retrieve a similar amount from Starbucks.

The Dutch government said late last month it would appeal the Starbucks ruling.

In Ireland, Ms. Vestager is investigating tax rulings granted to Apple. In Belgium, her inquiry is focused on a special tax break granted to dozens of subsidiaries of Belgian-based multinational companies that include a unit of Anheuser-Busch InBev, the world’s largest brewer.

The cases examine whether some European governments let major companies shift profits and pay lower tax rates than those available to other companies. Countries like France and Germany say the practices potentially deprive them of corporate tax revenue.

In the case of McDonald’s, a group of American and European trade unions and an antipoverty charity have heavily lobbied the European Commissionto open the case.

In February, they issued a report accusing Luxembourg of allowing McDonald’s to avoid paying more than €1 billion in taxes from 2009 to 2013 in Britain, France, Italy, Spain and other countries.

In a statement, McDonald’s said that it “complies with all tax laws and rules in Europe, and pays a significant amount of corporate income tax.”

“From 2010-14, the McDonald’s companies paid more than $2.1 billion just in corporate taxes in the European Union,” the statement said, adding that its independent franchisees also paid corporate and other taxes.

“We are subject to the same tax laws as other companies, and are confident that the inquiry will be resolved favorably,” the statement said.

The Service Employees International Union, which provided evidence to the commission in the case, said it was “time that the company be held accountable.”

“For too long, McDonald’s has stashed billions in tax havens and ducked contributing to state coffers while simultaneously imposing minimum wages on its workers,” said Scott Courtney, organizing director at the union, which is based in Washington.

Luxembourg has previously denied granting unfair state aid to multinational companies. But the formal opening of the case involving McDonald’s is a sign that Ms. Vestager believes she has enough evidence that the company has benefited from such treatment.

The cases against Luxembourg are awkward for Jean-Claude Juncker, the country’s former prime minister who is the president of the European Commission and Ms. Vestager’s boss. Mr. Juncker has been accused by his opponents of helping to turn Luxembourg into a tax haven during his nearly two decades leading the nation.

The tax cases are different from those Ms. Vestager has against Google and Gazprom, among other companies, because they are not based on antitrust regulations and are directed at countries that use tax rulings to gain an advantage in attracting investors.

Unlike in antitrust cases, companies found to have received such aid do not face fines or a finding of wrongdoing. Instead, the European Commission would impose penalties on the country that granted the aid.

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