For several years, the American fast-food giant McDonald’s was allowed to go without paying taxes on a number of revenues from restaurants in Europe through a tax agreement with Luxembourg, which the EU’s Competition watchdog ruled were not illegal.
The EU executive reportedly concluded that McDonald’s was exempt for paying certain taxes due to the tax law discrepancies in the US and Luxembourg, despite the existence of a bilateral taxation treaty, the EU’s Commissioner for Competition Margrethe Vestager said on September 19.
Vestager said that the Commission’s in-depth investigation has shown that the reason for double non-taxation was, in this case, due to a mismatch between the tax laws of Luxembourg and the US, and not because of a special treatment by Luxembourg.
“Luxembourg did not break EU state aid rules,” but “of course, the fact remains that McDonald’s did not pay any taxes on these profits – and this is not how it should be from a tax fairness point of view,” said Vestager, adding that the three-year investigation mainly focused on McDonald’s Luxembourg-based subsidiary, Europe Franchising, which profits on royalty rights from the fast food company’s franchisees in Europe, Ukraine, and Russia.
In a 2009 tax ruling, the Grand Duchy of Luxembourg concluded that McDonald’s did not have to pay corporate taxes as its profits would be taxed in the United States, while in a second tax ruling, the Luxembourgish government said the company was no longer required to prove that its royalty income was subject to US taxation.
To resolve the issue Vestager reiterared that Luxembourg has since made moves to avoid similar cases in the future, the country presented draft legislation to avoid double non-taxation. “I am pleased that Luxembourg is doing something about legislation in continuation of the case to avoid any similar situations in the future,” Vestager said.
Luxembourg’s Finance Minister Pierre Gramegna welcomed the ruling, saying, “I am pleased that the Commission has found that the application of the rules that were in force at the time fully complied with Community law.
The chairman of the European Parliament’s tax committee, Jeppe Kofod, was angered by the ruling and demanded new European tax rules.
“It shows how grotesque rules exist in Europe when Luxembourg can offer large multinational companies agreements where they do not have to pay taxes,” said Kofod, who proposing a new system so that all major companies pay taxes on their earnings.