McDonald’s could be facing a European Commission (EU) investigation into its tax affairs.
EU competition commissioner Margrethe Vestager said she is looking into trade union allegations that McDonald’s avoided paying more than €1 billion ($1.1 billion) in corporate taxes between 2009 and 2013.
Unions claim McDonald’s diverted nearly €4 billion of revenues into a Luxembourg subsidiary staffed by 13 people.
McDonald’s has rejected the claims.
Photo Reuters
Margrethe Vestager said her office is “looking into the information gained by trade unions when it comes to McDonald’s in order to assess if there is a case.”
The coalition of European and US unions claims that McDonald’s reduced its tax burden by moving its British headquarters to Switzerland and then channeling money into a Luxembourg-based subsidiary that also had a Swiss branch.
The unions said the Luxembourg offshoot had revenues of €3.7 billion over the five-year period but reported paying €16 million in taxes.
McDonald’s maintains that it has complied fully with EU tax law.
The EU has been cracking down on what it sees as aggressive tax avoidance by multinational companies, last year opening investigations into Apple in Ireland, Starbucks in the Netherlands, and Amazon in Luxembourg.
The newly elected president of the European Commission, Jean-Claude Juncker, has denied allegations he encouraged tax avoidance when he was Luxembourg’s prime minister.
Jean-Claude Juncker, 59, said there was “nothing in my past to indicate that I wanted to encourage tax evasion”.
He has come under pressure over claims that some 340 global companies were granted deals to help them avoid tax during his 18 years in office.
The Commission has begun an investigation.
Jean-Claude Juncker has denied allegations he encouraged tax avoidance when he was Luxembourg’s prime minister
Jean-Claude Juncker, 59, took over as president of the Commission at the start of November and was confronted within days with a report by investigative journalists that alleged that companies such as Pepsi and Ikea had made deals with his country’s government to save billions in tax in other countries.
Incumbent PM Xavier Bettel was quoted as saying all deals abided by international tax rules, although Jean-Claude Juncker made no comment at the time.
In an unexpected appearance before journalists on November 12, the Commission President repeated the message.
“Everything that has been done has been in compliance with national legislation and international rules that apply in this matter,” he said.
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The European Commission will press Luxembourg over new allegations it offered tax breaks for more than 300 global companies, an EU spokesman says.
Commission chief and ex-Luxembourg PM Jean-Claude Juncker will not handle the probe, Margaritis Schinas said.
Pepsi and Ikea are among those accused of making deals with Luxembourg to save billions in tax in other countries.
The revelations were published in a report by the International Consortium of Investigative Journalists (ICIJ).
Luxembourg is already under investigation by the EU over suspected “sweetheart” tax deals with online retailer Amazon and the financing arm of carmaker Fiat.
Two other member states, Ireland and Malta, are also being investigated as part of the EU’s crackdown on multinationals’ tax avoidance schemes.
Luxembourg PM Xavier Bettel has insisted that the deals abided by international rules on tax, in comments reported by AFP news agency.
The European Commission will press Luxembourg over new allegations it offered tax breaks for more than 300 global companies
The ICIJ said a team of 80 journalists had pored over nearly 28,000 pages of leaked documents showing tax agreements and returns relating to more than 1,000 businesses.
It says the companies created “complicated accounting and legal structures that move profits to low-tax Luxembourg from higher-tax countries where they’re headquartered or do lots of business”.
In some cases, it adds, companies enjoyed tax rates of less than 1% on profits moved into the European duchy.
“The Duchy of Luxembourg has a legitimate government that has to provide answers to the investigation opened by the Commission,” the EU Commission’s spokesman Margaritis Schinas told reporters on November 6.
When pressed repeatedly about Jean-Claude Juncker’s role in the probe, Margaritis Schinas said that EU Competition Commissioner Margrethe Vestager would take charge of the current investigation.
“She will request the appropriate information, enforcing the rules, as is the duty of the European Commission,” he added.
The leaked papers related to some 340 companies, including FedEx, Accenture, Burberry, Procter & Gamble, Heinz, JP Morgan, Deutsche Bank.
The deals – which the ICIJ says were legal – were facilitated by the international tax advisory group PricewaterhouseCoopers.
The Guardian, which was one of the media outlets working on the probe, said it painted “a damning picture of an EU state which is quietly rubber-stamping tax avoidance on an industrial scale”.
Luxembourg was “like a magical fairyland,” the paper quotes former senior US Treasury official Stephen Shay as saying.
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Luxembourg has announced it would ease the secrecy surrounding its banks by implementing rules on the automatic exchange of bank account information with its European Union partners from 2015.
PM Jean-Claude Juncker said Luxembourg would introduce the reforms in two years, in line with the EU Savings Directive.
The rules of the Directive are aimed at creating greater transparency and minimizing tax evasion.
Luxembourg would ease bank secrecy by implementing EU rules on the automatic exchange of bank account information from 2015
Calls for a crackdown on bank secrecy have been increasing, as governments seek to raise more taxes to support their finances.
“We can introduce [the rules] without any danger from January 2015,” Jean-Claude Juncker said.
Luxembourg is a country of only 500,000 people, but its banks and other financial institutions have assets worth more than 20 times the country’s economic output.
Luxembourg’s foreign minister, Luc Frieden, said at the weekend that he wanted to “strengthen co-operation with foreign tax authorities”.
Last week, Germany signed a tax evasion treaty with Switzerland – another European banking centre known for its secrecy.
The treaty is designed to give the German tax authorities the ability to claw back taxes from their citizens who may be hiding money in Swiss banks.
Luxembourg’s announcement leaves Austria as the only European Union country not signed up to the EU Savings Directive.
Austria’s finance minister, Maria Fekter, said recently that she would “fight like a lion” to defend the country’s banking secrecy regime.
However, Austrian Chancellor Werner Faymann indicated on Tuesday that change may have to come.
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