A man uses a mobile phone as pedestrians walk past a McDonald’s Corp. restaurant in Shanghai, China. (Photographer: Qilai Shen/Bloomberg)

EU Ends Tax Probe Into McDonald’s With a Rare Reprieve

(Bloomberg) -- McDonald’s Corp. won a rare reprieve from European Union competition regulators cracking down on unfair fiscal deals for multinational firms.

The Big Mac maker escaped the fate of other big U.S. companies ordered to repay back taxes to EU nations after officials concluded that a pact with Luxembourg didn’t break the law. The arrangement allowed the company to side step taxes on its profits in the tiny country that’s been at the center of a wave of tax probes.

"Our in-depth investigation has shown that the reason for double non-taxation in this case is a mismatch between Luxembourg and U.S. tax laws, and not a special treatment by Luxembourg,” EU Competition Commissioner Margrethe Vestager said in a statement. “Therefore, Luxembourg did not break EU state aid rules.”

Luxembourg has already faced three negative decisions amid the EU crackdown, being ordered in June to recoup 120 million euros ($141 million) from French energy utility Engie SA and in 2017 to reclaim 250 million euros from Amazon.com Inc. over selective tax benefits granted to the U.S. tech company.

“I am pleased that the commission notes that the application of the rules in force at the time was in conformity with EU law,” Luxembourg Finance Minister Pierre Gramegna said in an emailed statement.

McDonald’s welcomed the EU’s decision, saying in a statement that the company pays “the taxes that are owed and, from 2013-2017, McDonald’s companies paid more than $3 billion just in corporate income taxes” in the EU with an average tax rate close to 29 percent.”

The announcement comes just over two years after Apple Inc. was handed a record multibillion-euro tax bill over its revenue arrangements in Ireland. EU officials have often described the McDonald’s case as challenging because they had to take account of double-tax and other international treaties.

Double Non-Taxation

In this case, the commission concluded that Luxembourg had not misapplied the Luxembourg -- U.S. Double Taxation Treaty by exempting the income of the company’s American branch from Luxembourg corporate taxation. “This interpretation of the Luxembourg -- U.S. Double Taxation Treaty led to double non-taxation of the franchise income of McDonald’s Europe Franchising.”

Luxembourg in June proposed draft rules that would change provisions in the tax code to bring them in line with international tax standards and avoid similar cases of double non-taxation in the future, the commission said. The draft law is being discussed by the Luxembourg Parliament.

“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,” Vestager told reporters in Brussels on Wednesday. “That’s why I very much welcome that the Luxembourg government is taking legislative steps to address the issue that arose in this case and avoid such situations in the future.”

Vestager says she is standing up for fairness by cracking down on special tax deals that benefit only a select few companies. At stake are billions of euros that multinational companies have squirreled away in tax havens, out of the reach of authorities in the countries where they make most of their sales.

Ending the McDonald’s probe comes a week before Vestager plans to meet U.S. officials and politicians in Washington amid criticism that EU investigations have often targeted successful American companies. Google has been fined about 6.7 billion euros to date and is still facing a further antitrust probe.

McDonald’s in 2016 announced it would ditch Luxembourg and switch its non-U.S. tax base to the U.K., where it would create a new international holding company in charge of most of the royalties received from licensing intellectual property rights outside the U.S.

Alongside the EU case, the hamburger chain has been facing criticism from trade unions and consumer groups, alleging the company avoided more than 1 billion euros in taxes in Europe between 2009 and 2013.

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