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McDonald’s Tax Deal With Luxembourg Not Illegal – EU

The European Union (EU) antitrust regulators on Wednesday ruled that McDonald’s tax deal with Luxembourg did not breach EU state aid rules.

According to a news report by Reuters, the regulators noted that the reason the U.S. fast food chain did not pay some taxes was due to the mismatch between U.S. and Luxembourg laws.

The decision by the European Commission came after a three-year long investigation, part of its crackdown against illegal sweetheart deals between EU governments and multinationals.

European Commission said that the investigation had resulted in Apple, Starbucks and Fiat paying billions of euros in back taxes.

Commenting on the tax deal, European Competition Commissioner, Margrethe Vestager, explained that McDonald’s tax deal was in line with national tax laws and the Luxembourg-U.S. double taxation treaty.

She clarified: “Our in-depth investigation has shown that the reason for double non-taxation in this case is a mismatch between Luxembourg and U.S. tax laws, and not a special treatment by Luxembourg.

“Therefore, Luxembourg did not break EU state aid rules. Of course, the fact remains that McDonald’s did not pay any taxes on these profits and this is not how it should be from a tax fairness point of view”,  Vestager added.

It would be recalled that the investigation on the tax deal had focused on McDonald’s Luxembourg-based subsidiary, Europe Franchising, which receives royalties from franchisees in Europe, Ukraine and Russia.

Luxembourg, in a 2009 tax ruling, said that the company did not have to pay corporate taxes as its profits would be taxed in the U.S.

According to the latest news report, in a second tax ruling, the Grand Duchy said that the company was no longer required to prove that its royalty income was ubject to U.S. taxation.

In June, Luxembourg presented draft legislation to avoid double non-taxation.

In a statement issued today in reaction to the EU ruling, Luxembourg said that it welcomed the Commission’s recognition of the steps it had taken to avoid similar cases in future.

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