McDonald's (NYSE:MCD) is but one more US company that has fallen foul of the hungry European Union exchequer and is now being pursued for alleged unpaid tax in Luxembourg after a probe by Brussels authorities next door, in the home of the French fries, Belgium.
The Financial Times reported oat the weekend that the US fast-food giant may be ordered to pay $500mln in back taxes to the Grand Duchy of Luxembourg.
McDonald's is currently being investigated by Brussels over a tax ruling which allowed the firm to pay no taxes in the US or in Luxembourg.
Nor is it the first time McDonalds has had a brush with tax affairs in Luxembourg. In April, the FT also reported that the French finance ministry has taken issue with the amount of money McDonald’s France unit paid to a Luxembourg-based affiliate for services — including its use of the fast-food restaurant brand name — which helped to reduce McDonald’s taxable profits in the country. There were suggestions that bill might cost McDonalds up to 300mln euros in backdated tax plus fines.
The latest fiscal foray comes a month after the European Commmission imposed a 13bn euro tax penalty on Wall Street’s biggest stock Apple Inc (NASDAQ:AAPL) in Ireland, triggering a storm of protest from Washington and corporate America.
At the heart of the matter are so-called “sweetheart tax deals” and both McDonalds and Amazon may be the next to face the Apple fallout.
The fast-food chain is under investigation by Brussels over a tax ruling underpinning its European structure, which permitted McDonald’s to pay no corporation tax — either in the US or Luxembourg — on royalty income from restaurant franchises across Europe. Luxembourg and McDonald’s deny any wrongdoing.
Reportedly, the hamburger restaurant chain paid an average tax rate of 1.49% on the $1.8bn profit earned by its Luxembourg-based European headquarters since its 2009 reorganisation.
If the standard Luxembourg tax rate of 29.2% applied to those earnings — following the broad principles the commission applied in the Apple case — McDonald’s would owe the Grand Duchy nearly $500mln.
Both Apple and McDonald have issued statements insisting they have paid all tax owed.
The latest multinationals to be hit by an ever more ambitious and aggressive EU underscore the frail state of Europe’s coffers and how governments are no longer willing to be threatened with threats to pull out of countries that fail to give them preferential treatment.
Small companies have for decades watched as large corporations wielded influence in the markets they controlled worldwide. But as constant and often cruel challenges have been launched on both the tax affairs of major international corporates as well as their very functioning – witness the onslaught Google (NASDAQ:GOOGL) has endured over its bundling of products and Europe’s demand for a Right to be Forgotten in searches - it is evident that the continent’s regulators are confident to hound corporate America. Expect more to come.
McDonalds shares ended 0.1% lower at $115.21 on Monday.
And for those still doubting the introductory paragraph. French fries earned their name when the United States Army landed in Europe to fight Germany in 1917. US troops overheard some officers tucking into the potato delicacy and didn’t understand a word of French. They named the snack French fries. The feasting soldiers were in fact Belgian, as was the dish they ate.