EC probing McDonald's over claims of 'sweetheart' tax deal with Luxembourg

Fast food chain McDonald's is being investigated by European authorities over allegations it struck a "sweetheart" tax deal with Luxembourg.

The European Commission said the probe will look at alleged deals struck by the global giant to avoid paying taxes in Luxembourg and the US.

The inquiry comes amid a European Union clampdown on tax avoidance deals by multinationals, with the EC ordering coffee chain Starbucks and car group Fiat in October to repay up to 30 million euros (£22 million) in illegal tax breaks.

The EC said the European arm of McDonald's has paid virtually no corporation tax in Luxembourg or the US since 2009 after two rulings were made in Luxembourg, despite making significant profits in the division - more than 250 million euros (£177 million) in 2013 alone.

EU anti-trust commissioner Margrethe Vestager said: "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.

"The purpose of double taxation treaties between countries is to avoid double taxation - not to justify double non-taxation."

The European arm of McDonald's makes profits largely from royalties paid by franchisees of its restaurants in Europe and Russia.

Franchisees own and run around three quarters of the chain's restaurants in Europe.

A spokesman for McDonald's said the group complies with all tax laws in Europe and pays a "significant amount" of corporate income tax.

He said: "From 2010-2014, the McDonald's companies paid more than 2.1 billion US dollars just in corporate taxes in the European Union, with an average tax rate of almost 27%."

The group added it is "confident that the inquiry will be resolved favourably".

The Ministry of Finance in Luxembourg said it believed that McDonald's had not been given any special tax treatment or selective advantage.

"Luxembourg will fully co-operate with the Commission in the investigation," it added.

The EU first demanded information from McDonald's in 2014 after press reports of tax deals being struck in Luxembourg, while it said trade unions had since offered further evidence.

EU authorities have been investigating tax avoidance in general across all member states since June 2013.

It also has ongoing investigations into Apple and Amazon's tax affairs.