McDonald’s may be next on EU tax menu as inquiry finishes

A European Union investigation into McDonald’s is entering its final stages after officials gathered information on whether the US fast food franchise unfairly benefited from a hefty tax break in Luxembourg, sources have said.

The European Commission may be moving ahead with a decision in the McDonald’s case before the EU’s summer break in August, according to the sources, who asked not to be named because details of state-aid investigations are confidential. That means the ruling could arrive before another pending decision on Amazon’s tax deals with Luxembourg.

EU commissioner for competition Margrethe Vestager has been cracking down on tax loopholes, ordering Apple in August to pay as much as €13 billion plus interest in back taxes over an illegal accord with Ireland. Shortly after, Ms Vestager warned that Amazon and McDonald's were next "in the pipeline".

At stake are billions of euro that multinational companies have put away in tax havens, out of the reach of authorities in the countries where they make most of their sales.

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Partly in response to the EU’s moves, McDonald’s said in December that it would ditch Luxembourg and switch its non-US tax base to the UK, where it would create a new international holding company in charge of most of the royalties received from licensing intellectual property rights outside the US.

The fast food giant has also been facing criticism from trade unions and consumer groups, which allege the company avoided more than €1 billion in taxes in Europe between 2009 and 2013. An EU official last year called the McDonald’s case very instructive in showing how far some companies push authorities to avoid paying any taxes.

In-depth investigation

The European Commission opened its inquiry into McDonald’s more than a year after starting an in-depth investigation of Amazon’s tax affairs. Other cases opened around the same time as Amazon have led to decisions in which Starbucks and a Fiat Chrysler Automobiles NV unit were ordered to each pay as much as €30 million in back taxes to the Netherlands and Luxembourg respectively. Court appeals in all cases are already pending, including ones by Ireland and Apple over their EU state-aid decision.

McDonald’s and the EU didn’t respond to requests for comment. Amazon also declined to comment.

The investigations have been creating tensions between the EU and US, with former US Treasury secretary Jacob Lew writing to European Commission president Jean-Claude Juncker last year about the “disturbing international tax precedents” that the EU probes are creating.

Last week at an event in Paris, a former senior US Treasury official continued the criticism of the EU for putting anti-trust lawyers in charge of delving into “very, very tricky” issues that have troubled tax experts for years, such as profit attribution in the Apple case.

‘Bunch of plumbers’

“The commission has got itself now in a position where it’s a bunch of plumbers doing electrical work,” Robert Stack, the Treasury’s deputy assistant secretary for international tax affairs under the previous administration, said. “The commission has probably bitten off more than it can chew.”

Gert-Jan Koopman, the commission official in charge of the state-aid probes, took Mr Stack’s remarks in stride. He said the goal of the EU’s state-aid enforcement was to avoid subsidy races, whatever the industry. He then hit back with a Shakespeare reference.

“There is something rotten in the land of tax if these matters are considered to be just a matter of technical interpretation,” Mr Koopman said. “It is very hard to understand how it is possible that a company operates in Europe and in effect pays hardly any tax whatsoever.”

Further tax cases were planned as regulators sifted through new information and the EU was merely at “cruising altitude,” he said on Friday.

Bloomberg