CONTINUEThis site uses cookies. By continuing to browse this site you are agreeing to our use of cookies. Find out more.

 

EC Investigates Luxembourg's Tax Rulings For McDonald's

by Ulrika Lomas, Tax-News.com, Brussels
04 December 2015

The European Commission has launched a formal investigation into Luxembourg's tax treatment of McDonald's and said that its preliminary view is that a tax ruling granted to the company may have afforded it advantageous tax treatment in breach of European Union (EU) state aid rules.

The Commission said that 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 in the years since. It has however derived profits 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, and McDonald's also has branches in Switzerland and the US. The royalties received by the company are transferred internally to the US branch, the Commission said.

In 2014, the Commission requested information on these rulings. It said that its assessment has so far shown that it has been possible for McDonald's to reduce its corporate tax liabilities in Luxembourg and the US because the first tax ruling (provided by Luxembourg in March 2009) confirmed that McDonald's Europe Franchising was not due to pay corporate tax in Luxembourg on the grounds that the profits were to be subject to taxation in the US. This was justified by reference to the Luxembourg-US double taxation agreement. The ruling required McDonald's to submit proof every year that the royalties were declared and subject to tax in the US and Switzerland.

A second ruling was issued by Luxembourg in September 2009 after McDonald's clarified that McDonald's Europe Franchising did not have a taxable presence in the US under US law and could not therefore provide proof that the profits were subject to tax in the US. Under the second ruling, McDonald's was not required to prove that the income was subject to taxation in the US.

According to the Commission, "with the second ruling, Luxembourg authorities accepted to exempt almost all of McDonald's Europe Franchising's income from taxation in Luxembourg." It said: "As a result, the Luxembourg authorities recognized the McDonald's Europe Franchising's US branch as the place where most of their profits should be taxed, whilst US tax authorities did not recognize it. The Luxembourg authorities therefore exempted the profits from taxation in Luxembourg, despite knowing that they in fact were not subject to tax in the US."

The Commission will now investigate further to see if its concerns are justified, in particular the concern that the second ruling provided McDonald's with a favorable tax treatment in breach of EU state aid rules. It will assess whether Luxembourg authorities selectively deviated from the provisions of their national tax law and the Luxembourg-US double taxation treaty, and whether the Luxembourg authorities gave McDonald's an advantage not available to other companies in a comparable factual and legal situation.

Tax Commissioner Margrethe Vestager said: "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."

According to Article 107(1) of the Treaty on the Functioning of the European Union, state aid that affects trade between EU member states and threatens to distort competition by favoring certain undertakings is in principle incompatible with the EU single market.

In a statement, the Luxembourg Finance Ministry said: "The adoption of the opening decision is a procedural step that does not pre-judge the outcome of the investigation. This procedure is not related to any other case that is currently open. Luxembourg considers that no special tax treatment nor selective advantage have been granted to McDonald's. Luxembourg will fully cooperate with the Commission in the investigation."

In a statement provided to the BBC, McDonald's stated: "We are subject to the same tax laws as other companies and are confident that the inquiry will be resolved favorably. McDonald's complies with all tax laws and rules in Europe and pays a significant amount of corporate income tax. In fact, from 2010-2014, the McDonald's companies paid more than USD2.1bn just in corporate taxes in the European Union, with an average tax rate of almost 27 percent."

 



Treaty Updates by Territory

Latest Treaty Updates

United Arab Emirates - Various
11/1/2018

The United Arab Emirates Cabinet on January 7, 2018, approved two double tax agreements concluded with Moldova and Croatia.


Taiwan - United States
11/1/2018

Taiwanese Premier Lai Ching-Te has directed the Ministry of Finance to work towards a Taiwan-US tax treaty.


Cyprus - Saudi Arabia
11/1/2018

Cyprus and Saudi Arabia signed a DTA on January 3, 2018.


Colombia - Japan
18/12/2017

According to preliminary media reports, Colombia and Japan are negotiating a DTA.


Georgia - Moldova
18/12/2017

Georgia and Moldova signed a DTA on November 29, 2017.


Luxembourg - Kosovo
18/12/2017

Luxembourg and Kosovo signed a DTA on December 8, 2017.


Switzerland - United Kingdom
8/12/2017

Switzerland and the United Kingdom signed a DTA Protocol on November 30, 2017.


Liechtenstein - United Arab Emirates
4/12/2017

According to an update from the Liechtenstein Government, the new DTA with the United Arab Emirates will become effective from January 1, 2018.


Netherlands - Liechtenstein
4/12/2017

According to preliminary media reports, the Netherlands and Liechtenstein held a first round of DTA negotiations over three days ending November 17, 2017.


Saudi Arabia - Bulgaria
1/12/2017

Saudi Arabia's Cabinet on November 28, 2017, authorized the signing of a DTA with Bulgaria.


Bahrain - Hong Kong
1/12/2017

Bahrain's Cabinet has approved the signing of a new DTA with Hong Kong, the state news agency said November 13, 2017.


Hong Kong - Various
30/11/2017

Hong Kong announced on November 24, 2017, that its DTAs with Pakistan and Latvia had entered into force.


Finland - Germany
30/11/2017

Finland on November 2, 2017, confirmed that a new DTA signed with Germany will be effective from January 1, 2018.


Cyprus - Iran
30/11/2017

The DTA between Cyprus and Iran will become effective from January 1, 2018.


India - New Zealand
15/11/2017

India ratified a third Protocol to its DTA with New Zealand on November 2, 2017, publishing a Notice in its Official Gazette.


Gibraltar - United Kingdom
6/11/2017

Gibraltar and the United Kingdom are considering launching negotiations towards a DTA, according to recent comments from the UK's Economic Secretary to the Treasury.


Barbados - Italy
3/11/2017

Barbados and Italy have exchanged instruments of ratification in respect of a DTA, which will now become effective from January 1, 2018.


Switzerland - Pakistan
3/11/2017

Switzerland's Government on October 25, 2017, adopted a dispatch on the DTA concluded with Pakistan, enabling its ratification.


Spain - Portugal
2/11/2017

Spain and Portugal signed a DTA on October 18, 2017.


Pakistan - Latvia
2/11/2017

Pakistan and Latvia initialed a DTA on October 25, 2017.


Spain - Romania
31/10/2017

Spain and Romania signed a DTA on October 18, 2017.


Denmark - Japan
31/10/2017

Denmark and Japan signed a DTA Protocol on October 11, 2017.


Bahamas - Finland
31/10/2017

The Bahamas and Finland signed a Protocol to amend their TIEA on October 19, 2017.


Netherlands - Zambia
31/10/2017

The Dutch lower house of parliament on October 24, 2017, approved the ratification of a DTA signed with Zambia.


Cyprus - Mauritius
26/10/2017

Cyprus and Mauritius signed a DTA Protocol on October 23, 2017.




More Treaty Updates