Does McDonald's deserve an EU tax break?

The burger maker's tax affairs have come under scrutiny amid a global crackdown on corporate tax-avoidance as governments struggle to increase revenue and reduce deficits. Photo / iStock

McDonald's may have unfairly exploited a pact with Luxembourg to avoid tax on hundreds of millions of euros in profits for more than half a decade, European Union regulators said as they added the Big Mac maker to a growing list of U.S. firms facing a fiscal clampdown.

Months after trade unions accused the company of avoiding more than 1 billion euros ($1.05 billion) in taxes across Europe, the EU said it suspects Luxembourg broke state-aid rules since 2009 by allowing a McDonald's unit to escape taxes in the nation and across the Atlantic by misusing a double-taxation accord. McDonald's rejected the EU's accusations, saying it "pays a significant amount of corporate income tax" in Europe.

The EU probe into McDonald's Europe Franchising follows EU scrutiny of Apple and Amazon.com and Starbucks. Governments can be ordered by the competition regulator to claw back unfair state aid.

"The purpose of double taxation treaties between countries is to avoid double taxation -- not to justify double non- taxation," Margrethe Vestager, the EU's competition chief, said in an emailed statement outlining the EU regulator's preliminary findings in the case and announcing the start of a formal probe.

While Vestager has denied she's gunning for companies across the Atlantic, she's picked fights with several U.S. technology firms since taking office. She sent Google a formal antitrust complaint and began a clampdown on possible barriers to e-commerce and digital content, including Hollywood studios' pay-TV deals.

McDonald's said in an emailed statement that it "complies with all tax laws and rules in Europe and pays a significant amount of corporate income tax."

In fact, from 2010-2014, the McDonald's Companies paid more than $2.1 billion just in corporate taxes in the European Union, with an average tax rate of almost 27 percent.

The McDonald's case is the third to focus on Luxembourg, adding to the probe into Fiat and Amazon. The Grand Duchy may have approved hundreds of tax deals for multinational corporations. Leaked documents revealed last year that more than 340 companies such as PepsiCo, Ikea Group and FedEx transferred profits to the country through tax arrangements.

"Luxembourg considers that no special tax treatment nor selective advantage have been granted to McDonald's," the country's finance ministry said in an emailed statement. "Luxembourg will fully cooperate with the commission in the investigation."

The burger maker's tax affairs have come under scrutiny amid a global crackdown on corporate tax-avoidance as governments struggle to increase revenue and reduce deficits. The company's French offices were inspected by the country's fiscal authorities in 2013 and the EU inquired about McDonald's taxes in Luxembourg, people familiar with the matter said last year.

If there has been a special McTaxBreak it would be the latest in a long string of corporate tax giveaways that have allowed companies to duck paying their fair share of tax in the EU and in the poorest countries in the world.

Anders Dahlbeck, tax justice policy adviser at ActionAid

Companies with potentially illegal fiscal deals got a preview of what the EU may have in store in October when regulators ordered Starbucks and a Fiat Chrysler Automobiles unit to repay millions of euros of unfair tax subsidies.

"As long as countries like Luxembourg remain stubborn, the commission doesn't have a choice but to also analyze the integrity of the internal market from an antitrust angle," Sven Giegold, a German Green member of the European Parliament, said in an interview ahead of the EU announcement.

"The data that has become public about McDonald's showed that this is a very big fish," he said.