European Union regulators have officially opened an investigation into McDonald’s tax arrangement with Luxembourg, a generous deal that allowed the fast food company to avoid paying corporate taxes in Luxembourg and the United States since 2009.
Investigators contend that in 2009, Luxembourg granted McDonald’s a tax ruling that allowed a European unit of the company, McDonald’s Europe Franchising, to avoid taxes within Luxembourg on the grounds that it would taxed in the United States.
The unit, which earned its money from franchisees in Europe and Russia, was then granted another ruling later that year, which eliminated the need for McDonald’s to prove that its income had been taxed in the States.
If McDonald’s is found at fault for major tax evasion, the unit, which earned more than 250 million euros in 2013 alone, could easily face tens of millions of euros on back taxes based in Luxembourg’s 29 percent corporate tax rate.
McDonald’s is just one of several major companies to face increasing scrutiny from the EU regarding its special tax arrangements, including Apple, Amazon, and Anheuser-Busch InBev. Earlier this year, Starbucks was ordered to pay millions in unpaid taxes for a similar arrangement with the Netherlands, but the Dutch government has said that would appeal the ruling.
“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,” Margrethe Vestager, the European commissioner for competition, said in a statement. “The purpose of double taxation treaties between countries is to avoid double taxation — not to justify double nontaxation.”
Both McDonald’s and the Luxembourg government have denied any wrongdoing and have agreed to comply with the investigation.