European regulators confirmed Thursday that they have opened an investigation into whether a tax deal granted to McDonald's Corp. in Luxembourg in 2009 might have reduced its tax burden, causing a breach of European Union state aid rules.
The European Commission alleges that the European division of McDonald's might have not paid taxes in Europe or in the U.S. since 2009 despite recording large profits earned from restaurants in Europe and Russia - where the outlets that the EC is supposed to collect royalty fees from are located, according to The Wall Street Journal.
"A tax ruling that agrees to McDonald's paying no tax on their European royalties either in Luxembourg or in the U.S. has to be looked at very carefully," Margrethe Vestager, the European Commission's competition commissioner, said in a statement.
"The purpose of Double Taxation treaties between countries is to avoid double taxation - not to justify double non-taxation," she said.
In response, McDonald's argued that not only does it comply with all tax laws and rules in Europe, but it also pays a "significant amount of corporate income tax," according to USA Today. As such, it is "confident that the inquiry will be resolved favorably."
"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 company's statement said.
"Additionally, we pay social, real estate and other taxes. Our independent franchisees, who own and operate approximately 75 percent of our restaurants in Europe, also pay corporate tax and many other taxes," the statement added.
As the investigation continues in Europe, senior U.S. Treasury official Robert Stack is none too happy, telling a Senate Committee that the EU appears to be targeting U.S.-based companies, according to Reuters.
"U.S. taxpayers would wind up footing the bill for these state aid settlements when the affected U.S. taxpayers either repatriate amounts voluntarily or Congress requires a deemed repatriation as part of tax reform," said Stack.
This declaration came after both Starbucks in the Netherlands and Fiat Chrysler Automobiles NV in Luxembourg had probes closed in October after the EU ruled that both companies had benefited from illegal tax deals, ordering the respective governments to reclaim $21 to $32 million from each company.
The announcement of the most recent probe caused McDonald's shares to go down to $113.52 in Thursday trading .
