EU probes McDonald`s tax affairs as crackdown widens

Brussels: The European Union launched a probe Thursday into tax deals between US fast food giant McDonald`s and Luxembourg, as it widens an investigation into tax avoidance by major multinationals that includes Amazon and Apple.

The case against one of the world`s most iconic companies adds to a series of probes begun last year following the LuxLeaks affair, which revealed that top global companies had negotiated lower tax rates, in some cases as low as one percent, in secret pacts with Luxembourg.

The revelations, unearthed by investigative journalists, were a huge embarrassment to European Commission head Jean-Claude Juncker, who had just taken up his post after nearly two decades as Luxembourg premier.

The European Commission, the EU`s competition regulator, "has opened a formal probe into Luxembourg`s tax treatment of McDonald`s," a statement said.

"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," it added. 

The case against McDonald`s stemmed from a complaint by trade unions and the charity War on Want that accused McDonald`s of avoiding around one billion euros ($1 billion) in taxes between 2009 and 2013 by shifting profits from one corporate division to another.

Specifically, the Commission said it believed McDonald`s arrangements with Luxembourg meant it paid no local tax, nor its dues to the US authorities under treaties between the small Duchy and Washington.

"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," EU Competition Commissioner Margrethe Vestager said in the statement.Tax deals between EU member states and companies -- known as tax rulings -- are not in themselves illegal and the firms involved insist they fully comply with the tax laws where they operate.

But they have run foul of the European Commission`s tough rules on state aid, which are designed to ensure fair competition for all.

In a statement, the government in Luxembourg said it "would fully cooperate" with the Commission in the probe.

However, "Luxembourg considers that no special tax treatment nor selective advantage have been granted to McDonald`s," it added.

McDonald`s also said it would cooperate, adding that it was "confident that the inquiry will be resolved favourably."

If McDonald`s is found to have illegally benefitted from a sweetheart tax deal, the company could be required to pay a huge sum in back-taxes.

In October, the European Union ordered coffee shop chain Starbucks and carmaker Fiat to each repay up to 30 million euros ($34 million) in taxes owed. 

Brussels said tax deals that the Netherlands offered the US coffee giant and Luxembourg gave the Italian automaker were illegal, dealing its first major blow in the campaign against sweetheart tax arrangements.

Decisions on Apple in Ireland and Amazon, also in Luxembourg, are expected early next year.

The probes have drawn repeated criticism from US officials that the EU is unfairly targeting US multinationals in the tax crackdown, but the Commission sharply denied this.

"Any suggestion that we are specifically targeting US companies are unfounded and are untrue," Commission spokesman Ricardo Cardoso told journalists.