The Commission has opened a formal investigation into Luxembourg's tax treatment of McDonald's. Its preliminary view is that a tax ruling granted by Luxembourg may have granted McDonald's an advantageous tax treatment in breach of EU state aid rules.
The Commission has opened a formal investigation into Luxembourg's tax treatment of McDonald's. Its preliminary view is that a tax ruling granted by Luxembourg may have granted McDonald's an advantageous tax treatment in breach of EU state aid rules.
On the basis of two tax rulings given by the Luxembourg authorities in 2009, McDonald's Europe Franchising has paid no corporate tax in Luxembourg since then despite recording large profits of more than €250m in 2013. These profits are derived from royalties paid by franchisees operating restaurants in Europe and Russia for the right to use the McDonald’s brand and associated services. The company's head office in Luxembourg is designated as responsible for the company's strategic decision-making, but the company also has two branches, a Swiss branch, which has a limited activity related to the franchising rights, and a US branch, which does not have any real activities. The royalties received by the company are transferred internally to the US branch of the company. However, contrary to the assumption of the Luxembourg tax authorities when they granted the first ruling, the profits were not to be subjected to tax in the US because it did not qualify as having a taxable presence in the US under US law. A second ruling in September 2009 confirmed that the income of McDonald's Europe Franchising was not subject to tax in Luxembourg even if it was confirmed not to be subject to tax in the US either.
The Commission will now investigate further to see if its concerns are justified that in particular the second tax ruling provided McDonald's Europe Franchising with a favourable tax treatment in breach of EU state aid rules. In particular, the Commission will assess whether Luxembourg authorities selectively derogated from the provisions of their national tax law and the Luxembourg/US Double Taxation Treaty and whether thereby the Luxembourg authorities gave McDonald's an advantage not available to other companies in a comparable factual and legal situation. This investigation does not call into question the general tax regime of Luxembourg.
Commissioner Margrethe Vestager, in charge of competition policy, stated: ‘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.’
The Commission has opened a formal investigation into Luxembourg's tax treatment of McDonald's. Its preliminary view is that a tax ruling granted by Luxembourg may have granted McDonald's an advantageous tax treatment in breach of EU state aid rules.
The Commission has opened a formal investigation into Luxembourg's tax treatment of McDonald's. Its preliminary view is that a tax ruling granted by Luxembourg may have granted McDonald's an advantageous tax treatment in breach of EU state aid rules.
On the basis of two tax rulings given by the Luxembourg authorities in 2009, McDonald's Europe Franchising has paid no corporate tax in Luxembourg since then despite recording large profits of more than €250m in 2013. These profits are derived from royalties paid by franchisees operating restaurants in Europe and Russia for the right to use the McDonald’s brand and associated services. The company's head office in Luxembourg is designated as responsible for the company's strategic decision-making, but the company also has two branches, a Swiss branch, which has a limited activity related to the franchising rights, and a US branch, which does not have any real activities. The royalties received by the company are transferred internally to the US branch of the company. However, contrary to the assumption of the Luxembourg tax authorities when they granted the first ruling, the profits were not to be subjected to tax in the US because it did not qualify as having a taxable presence in the US under US law. A second ruling in September 2009 confirmed that the income of McDonald's Europe Franchising was not subject to tax in Luxembourg even if it was confirmed not to be subject to tax in the US either.
The Commission will now investigate further to see if its concerns are justified that in particular the second tax ruling provided McDonald's Europe Franchising with a favourable tax treatment in breach of EU state aid rules. In particular, the Commission will assess whether Luxembourg authorities selectively derogated from the provisions of their national tax law and the Luxembourg/US Double Taxation Treaty and whether thereby the Luxembourg authorities gave McDonald's an advantage not available to other companies in a comparable factual and legal situation. This investigation does not call into question the general tax regime of Luxembourg.
Commissioner Margrethe Vestager, in charge of competition policy, stated: ‘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.’
