The European Commission (EC) announced Thursday they are opening up a formal investigation against McDonalds over tax treatment that some suspect is in violation of the rules of free competition in Europe. The investigation was opened by the Luxembourg government. Brussels also wants clarification on two tax resolutions from 2009 which allow McDonald’s Europe franchises to avoid paying corporate taxes in places like Luxembourg.
During this current tax year, the company “did not pay any taxes” in Luxembourg according to the complaint. The company is said to have not paid taxes despite the company showing earnings of more than 250 million euros ($266 million) in 2013 just in Europe. The reason behind McDonald’s not paying taxes in Luxembourg stems from a European directive on double taxation. The directive was created to prevent multinationals from being charged or taxed in two countries for the same benefit.
The conflict comes from the fact that the profits earned in Europe were also not taxed in the United States. The EC argues that Luxembourg authorities were aware that profits earned in Europe by McDonald’s “were not being taxed in the United States.”
“The tax resolution which allows for McDonald’s to not pay taxes in both Luxembourg and the United States for profits generated in Europe needs to be carefully examined by the European Union,” said the European Commissioner of Competition, Margrethe Vestager.
McDonald’s alleged tax evasion was discovered by a group of journalists known as LuxLeaks.
McDonald’s is not the first company to be under investigation for unpaid taxes either. In October, during the first closed cases, the Italian automobile company Fiat and the U.S. coffee company Starbucks were both investigated and ordered to pay a total of 60 million euros ($64 million) to Luxembourg and the Netherlands respectively. Apple is also being investigated in Ireland, and Amazon is being investigated in Luxembourg for similar tax evasion concerns.
“For too long, McDonald’s has stashed billions in tax havens and ducked contributing to state coffers while simultaneously imposing poverty wages on its workers,” commented Scott Courtney, the organizing director at the U.S. Service Employees International Union. “McDonald’s has a clear record of mistreating workers and communities virtually everywhere it operates, and it’s time that the company is held accountable.
McDonald’s shared fell by 0.29% and closed at $113.39 on the stock market Thursday as a result of the announcement of the EC’s investigation.
McDonald’s denies any allegations of tax evasion. In fact, the company says it complies with all European tax laws and pays a “significant amount” of corporate income tax. From 2010 to 2014 the company “paid more than $2.1 billion in corporate taxes” in Europe according to a spokesperson for the company.
“Additionally, we pay social, real estate and other taxes,” said the spokesperson. “We are subject to the same tax laws as other companies and are confident that the inquiry will be resolved favorably.”
McDonald’s is cooperating with the investigation. If the EC finds that the company benefited illegally from tax benefits, McDonald’s could end up paying over $30 million to Luxembourg and their tax situation in Europe will be changed.