The fast food giant plans to relocate its non-U.S. tax base from Luxembourg to the U.K., despite the general trend among businesses to move away from the country on Brexit fears.
The American company has been under fire over "advantageous tax treatment" the company received from Luxembourg, which possibly breached the EU State aid rules. The Commission said last year that one of McDonald's (NYSE: McDonald's [MCD]) most profitable subsidiaries had paid no corporation tax at all since 2009 while making record-high profits.
"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 Commissioner Margrethe Vestager said in the statement.
McDonald's declined breaking any tax rules and said it had religiously paid the corporate taxes to Luxembourg and highlighted the elevated EU tax rate:
"From 2011-2015, we paid more than $2.5billion in corporate taxes in the EU, with an average tax rate approaching 27 percent," said the company, as reported by Daily Mail.
Earlier today, McDonald's made an announcement that it planned to move its biggest tax base outside of its home market, the United States, to the U.K. The analysts immediately connected the company's decision to the last year's EU tax probe against the fast food giant. The newly-created international holding company will take care of all tax royalties McDonald's receives from outside the U.S., what could add up to millions of pounds in tax payments for the British Treasury.
In addition to that, as compared to the high tax rates in the EU, the U.K. has been reportedly considering lowering its current corporate tax level of 20% to 19% by next April. Bloomberg said that the new Prime Minister Theresa May made attracting and retaining international businesses in the country a central part of her post-Brexit recovery strategy whereas the Chancellor Philip Hammond shared plans for pushing corporate taxes even further down to 17% by 2020.
However, McDonald's said that its decision to move the tax operations to the U.K. was merely due to the high number of employees located in London. The Daily Mail adds citing McDonald's spokesperson, that the company was not going after a better corporate tax rate promised by the U.K. government but only wanted to make its operations more efficient, which was not possible in Luxembourg anymore.
The company's announcement comes as a surprise as most big corporations were discussing moving their operations away from the United Kingdom because of the Brexit vote. For McDonald's this is also a big turnaround, considering that the company was previously not among those supporting Brexit.
Other American companies operating in Europe like Amazon (NASDAQ: Amazon.com [AMZN]) and Apple (NASDAQ: Apple [AAPL]) received similar probes from the EU regulators earlier this year, with Apple being involved in a big conflict around the €13 billion fine over illegal tax reductions in Ireland.