The investigation, launched in 2015, considered whether under EU state aid rules the double non-taxation of McDonald’s profits was due to the Luxembourg’s misapplication of national law and the Luxembourg-United States Double Taxation Treaty, favouring McDonald’s.
European Commissioner Magrethe Vestager said that while EU state aid rules aim to prevent unfair advantages to selected companies, for example through illegal tax benefits, this was not the case with McDonald’s in Luxembourg.
She said that the investigation showed “that the reasons for the double non-taxation in this case is a mismatch between Luxembourg and US tax laws, and not a special tax treatment by Luxembourg. “Therefore, Luxembourg did not break EU state aid rules,” she stated.
Vestager did say that McDonald’s not paying any tax on the profits – since 2009 – in question was not “how it should be from a tax fairness point of view.
“That’s why I very much welcome that the Luxembourg government is taking legislative steps to address the issue that arose in this case and avoid such situations in the future,” Vestager added.
In June, the government of Luxembourg presented draft legislation to amend the tax code, bringing it more into line with the OECD’s base erosion and profit shifting.
Luxembourg authorities granted McDonald’s European Franchising a first tax ruling in March 2009 exempting it from paying corporate tax in Luxembourg due to the profits being subject to taxation in the United States.
This was updated with a second ruling in September of the same year under which McDonald’s no longer had to prove its royalty income was subject to US taxation.
In October last year, retail giant Amazon was ordered by the EC to pay £188.5m in taxes to Luxembourg after a three-year investigation found the country had provided illegal tax benefits.
Danny McCance is a senior staff writer for economia, ICAEW’s award-winning portfolio for news and analysis on the essential issues in business, finance, tax and accountancy