McDonald's May Be Next on EU Menu as Probe Said to Wrap Up (2)

(Bloomberg) -- A European Union probe into McDonald’s Corp. is entering its final stages after officials gathered information on whether the Big Mac maker unfairly benefited from a hefty tax break in Luxembourg, according to people familiar with the case.

The European Commission may be moving ahead with a decision in the McDonald’s case before the EU’s summer break in August, according to the people, who asked not to be named because details of state-aid investigations are confidential. That means the ruling could arrive before another pending decision on Amazon.com Inc.’s tax deals with Luxembourg, the people said.

EU Competition Commissioner Margrethe Vestager has been cracking down on tax loopholes, ordering Apple Inc. in August to pay as much as 13 billion euros ($13.9 billion) plus interest in back taxes over an illegal accord with Ireland. Shortly after, she warned that Amazon and McDonald’s were next “in the pipeline.” At stake are billions that multinational companies have squirreled away in tax havens, out of the reach of authorities in the countries where they make most of their sales.

Partly in response to the EU probe, McDonald’s announced in December it will ditch Luxembourg and switch its non-U.S. tax base to the U.K., where it would create a new international holding company in charge of most of the royalties received from licensing intellectual property rights outside the U.S.

Billion Euros

Alongside the EU case, the hamburger giant has been facing criticism from trade unions and consumer groups, alleging the company avoided more than 1 billion euros in taxes in Europe between 2009 and 2013. An EU official last year called the McDonald’s case very instructive in showing how far some companies push authorities to avoid paying any taxes.

The Brussels-based commission opened its probe into McDonald’s more than a year after starting an in-depth investigation of Amazon’s tax affairs. Other cases opened around the same time as Amazon have led to decisions in which Starbucks Corp. and a Fiat Chrysler Automobiles NV unit were ordered to each pay as much as 30 million euros in back taxes to the Netherlands and Luxembourg respectively. Court appeals in all cases are already pending, including ones by Ireland and Apple over their EU state-aid decision.

McDonald’s didn’t respond to requests for comment. Amazon and the EU declined to comment.

Tense Relations

The investigations have been creating tensions in EU-U.S. relations, with then U.S. Treasury Secretary Jacob Lew writing to Commission President Jean-Claude Juncker last year about the “disturbing international tax precedents” that the EU probes are creating.

The EU antitrust chief, Vestager, said in a Bloomberg Television interview last week that she is open to discussions with the new administration.

“We’re more than happy to talk about how our approach is different from the approach of the U.S.,” Vestager told Bloomberg TV’s David Gura in the March 31 interview. “We share the concerns that sometimes businesses can harm competition. For us in Europe, it’s also important that governments cannot harm competition by handing out selective benefits to certain companies, or groups of companies.”

The U.S. said a report on foreign trade barriers last week that it is “deeply concerned” by the EU’s state aid probes into tax rulings. The report says that Vestager’s approach “departs from prior EU case law and commission decisions.”

Last week at an event in Paris, a former senior U.S. Treasury official continued the criticism of the EU for putting antitrust lawyers in charge of delving into “very, very tricky” issues that have troubled tax experts for years, such as profit attribution in the Apple case.

“The commission has got itself now in a position where it’s a bunch of plumbers doing electrical work,” Robert Stack, the Treasury’s deputy assistant secretary for international tax affairs under the previous administration, said March 27. “The commission has probably bitten off more than it can chew.”

Gert-Jan Koopman, the commission official in charge of the state-aid probes, took Stack’s remarks in stride. He said the goal of the EU’s state-aid enforcement is to avoid subsidy races, whatever the industry. He then hit back with a Shakespeare reference.

“There is something rotten in the land of tax if these matters are considered to be just a matter of technical interpretation,” Koopman said at the Paris event. “It is very hard to understand how it is possible that a company operates in Europe and in effect pays hardly any tax whatsoever.”

(Updates with U.S. concerns in 11th paragraph.)

--With assistance from Aoife White

To contact the reporters on this story: Stephanie Bodoni in Berlin at sbodoni@bloomberg.net, Gaspard Sebag in Paris at gsebag@bloomberg.net.

To contact the editors responsible for this story: Anthony Aarons at aaarons@bloomberg.net, Peter Chapman

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