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McDonald’s may be next on EU menu as probe said to wrap up

LiveMint logoLiveMint 03-04-2017 Stephanie Bodoni

Berlin/Paris: A European Union (EU) probe into McDonald’s Corp. is entering its final stages after officials gathered information on whether the Big Mac maker unfairly benefited from a hefty tax break in Luxembourg, according to people familiar with the case.

The European Commission may be moving ahead with a decision in the McDonald’s case before the EU’s summer break in August, according to the people, who asked not to be named because details of state-aid investigations are confidential. That means the ruling could arrive before another pending decision on Amazon.com Inc.’s tax deals with Luxembourg, the people said.

EU Competition commissioner Margrethe Vestager has been cracking down on tax loopholes, ordering Apple Inc. in August to pay as much as €13 billion ($13.9 billion) plus interest in back taxes over an illegal accord with Ireland. Shortly after, she warned that Amazon and McDonald’s were next “in the pipeline.” At stake are billions that multinational companies have squirreled away in tax havens, out of the reach of authorities in the countries where they make most of their sales.

Partly in response to the EU probe, McDonald’s announced in December it will ditch Luxembourg and switch its non-US tax base to the UK, where it would create a new international holding company in charge of most of the royalties received from licensing intellectual property rights outside the US.

Billion euros

Alongside the EU case, the hamburger giant has been facing criticism from trade unions and consumer groups, alleging the company avoided more than €1 billion in taxes in Europe between 2009 and 2013. An EU official last year called the McDonald’s case very instructive in showing how far some companies push authorities to avoid paying any taxes.

The Brussels-based commission opened its probe into McDonald’s more than a year after starting an in-depth investigation of Amazon’s tax affairs. Other cases opened around the same time as Amazon have led to decisions in which Starbucks Corp. and a Fiat Chrysler Automobiles NV unit were ordered to each pay as much as €30 million in back taxes to the Netherlands and Luxembourg respectively. Court appeals in all cases are already pending, including ones by Ireland and Apple over their EU state-aid decision.

McDonald’s didn’t respond to requests for comment. Amazon and the EU declined to comment.

Tense relations

The investigations have been creating tensions in EU-US relations, with then US Treasury Secretary Jacob Lew writing to Commission President Jean-Claude Juncker last year about the “disturbing international tax precedents” that the EU probes are creating.

The EU antitrust chief, Vestager, said in a Bloomberg Television interview last week that she is open to discussions with the new administration.

“We’re more than happy to talk about how our approach is different from the approach of the US,” Vestager told Bloomberg TV’s David Gura in the 31 March interview. “We share the concerns that sometimes businesses can harm competition. For us in Europe, it’s also important that governments cannot harm competition by handing out selective benefits to certain companies, or groups of companies.”

Last week at an event in Paris, a former senior US Treasury official continued the criticism of the EU for putting antitrust lawyers in charge of delving into “very, very tricky” issues that have troubled tax experts for years, such as profit attribution in the Apple case.

“The commission has got itself now in a position where it’s a bunch of plumbers doing electrical work,” Robert Stack, the Treasury’s deputy assistant secretary for international tax affairs under the previous administration, said 27 March. “The commission has probably bitten off more than it can chew.”

Gert-Jan Koopman, the commission official in charge of the state-aid probes, took Stack’s remarks in stride. He said the goal of the EU’s state-aid enforcement is to avoid subsidy races, whatever the industry. He then hit back with a Shakespeare reference.

“There is something rotten in the land of tax if these matters are considered to be just a matter of technical interpretation,” Koopman said at the Paris event. “It is very hard to understand how it is possible that a company operates in Europe and in effect pays hardly any tax whatsoever.” Bloomberg

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