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EU to grill McDonald's over Luxembourg tax deal

Europe's top competition watchdog could be looking to take a big bite out of the world's largest fast-food chain as it launches a full-blown investigation into McDonald's dubious tax dealings with Luxembourg.

European Competition Commissioner Margrethe Vestager on Thursday announced she was probing whether the Grand Duchy had granted the US multinational "advantageous tax treatment in breach of EU State aid rules."

At issue is a 2009 tax deal, which illegally helped McDonald's avoid paying hundreds of millions in taxes on European franchise royalties. As a result, "McDonald's Europe Franchising has virtually not paid any corporate tax in Luxembourg nor in the US on its profits since," the Commission said in a statement. That's even though the company raked in profits of more than 250 million euros ($274 million) in 2013 alone, the bloc's top antitrust regulator noted.

'No special tax treatment'

Both Luxembourg and McDonald's were quick to dismiss any accusations of wrongdoing.

Luxembourg's finance ministry said that "no special tax treatment nor selective advantage have been granted to McDonald's," and vowed to "fully cooperate" in the investigation.

The hamburger giant, for its part, said it complied with all tax rules in Europe, insisting it paid more than 2.1 billion euros in corporate taxes in the EU from 2010 to 2014, with an average tax rate of nearly 27 percent.

"We are subject to the same tax laws as other companies and are confident that the inquiry will be resolved favorably," the company commented, adding that it also paid social, real estate and other taxes, while its independent franchises, which make up about 75 percent of its outlets, paid corporate and other taxes.

The wrath of Vestager

The probe is the latest in a series of crackdowns on corporate tax avoidance, launched in the wake of the so-called LuxLeaks scandals, in which a journalism consortium last year exposed Luxembourg as a key culprit in helping multinational companies dodge billions of euros in taxes.

In October, the Commission ordered Luxembourg to send Fiat Chrysler Automobiles a bill of 30 million euros in back taxes. And other European countries have come under the gun as well. Two months ago, The Netherlands' tax collected were ordered to reclaim 20-30 million euros from US coffee retailer Starbucks.

These are just a few of the companies that have felt the wrath of Vestager. The EU's top competition watchdog also has her eyes fixed on other global heavyweights, including Amazon, Apple and Google, all of which are facing antitrust charges.

Margrethe Vestager

Vestager left Danish politics for Brussels. Her relentlessness has earned her the nickname 'the Iron Lady of Denmark'

Crying foul

The preponderance of US corporations has led some overseas officials to cry foul. On Tuesday, senior US Treasury official Robert Stack told a Senate committee that the EU seemed to be singling out US companies.

"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," Stack told the lawmakers in Washington.

However, European Commission spokesman Ricardo Cardoso rejected such allegations.

"Any suggestion that we are specifically targeting US companies is unfounded and untrue," he told journalists in Brussels. "EU competition rules, including state aid rules, apply to all companies that operate in the single market," he said. "If you want to operate in the EU, you are subject to...EU competition rules and that's what ensures that you can compete on a level playing field."

EU's Juncker under pressure

If anything, Vestager's tax avoidance assault seems to put the most pressure on the person at the heart of the EU: Commission President Jean-Claude Juncker. For nearly a quarter-century, he served as both Luxembourg's prime minister (1995-2013) and finance minister (1989-2009). Most of the dubious tax deals were signed under his watch.

So far, Juncker has denied any wrongdoing, but has also said he would take political responsibility for what happened in Luxembourg under his leadership. And he insists he won't get in the way of Vestager.

pad/uhe (dpa, Reuters)

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