EU: EC officially probing McDonald’s over ‘sweetheart’ tax deal with Luxembourg

Luxembourg’s legislature said it would “completely collaborate” with the examination, and that it “considers that no exceptional expense treatment nor particular point of preference have been conceded to McDonald’s”. All royalties received by McDonald’s Europe Franchising are transferred internally to the USA branch. But contrary to Luxembourg tax authorities’ assumption, the profits were not taxable in the U.S.as well.

Luxembourg said on Friday it will appeal an European Union ruling that Italian auto giant Fiat must pay around 30 million euros in back taxes after benefiting from an illegal tax break from the small Duchy.

Under the second ruling, McDonald’s was not required to prove that the income was subject to taxation in the US. McDonald’s Europe Franchising is headquartered in Luxembourg but also has two branches, in Switzerland and the US.

Under the Luxembourg-US Double Taxation Treaty, McDonald’s has been exempt from paying tax on the income from its franchising business in Europe based on the understanding that these revenues are taxed in the US.

The European Union launched a probe Thursday into United States fast food giant McDonald’s tax deals with Luxembourg, widening an investigation into alleged tax dodging by major multinationals that includes Amazon and Apple. 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.

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