McDonald’s Corporation (NYSE:MCD) could have to make payments to the European Union (EU) amounting to $500 million.
EU Commissioner for Competition Margrethe Vestager is currently probing companies to determine whether or not they owe back taxes to the economical power that exists overseas. The government is looking into whether or not companies are evading taxes.
The way that McDonald’s has conducted its business in Europe could cost it half a billion in USD. A tax exemption was passed in Luxembourg in 2009 that allowed the fast food giant to be exempt from royalty revenues if it could prove that it declared profit in the U.S. and paid tax on that profit.
However, this exemption was changed, eliminating the condition that asked for proof of profit. McDonald’s has paid taxes at a rate of 1.49% in Luxembourg, which is significantly lower than the country’s tax rate of 29.2%.
The EU is considering intervening and changing the tax exemption laws retroactively, costing the company $500 million. The European Commission said in a Dec. 2015 investigation that the way McDonald’s runs its business gives it an unfair edge in the country.
“A tax ruling that agrees to McDonald’s paying no tax on their European royalties either in Luxembourg or in the US has to be looked at very carefully under EU state aid rules,” said Vestager then.
MCD stock is up 0.1% Monday.
