McDonald's Corp. MCD faces tax investigation by European Union regulators into its Luxembourg operations. The European antitrust regulatory body will verify whether a tax ruling by Luxembourg in 2009 allowed the company to unfairly avoid paying corporate taxes on its European royalties in Luxemburg.
Per the commission’s initial assessment, the company’s European subsidiary McDonald's Europe Franchising has not paid any tax in Luxembourg or in the U.S. since the ruling in 2009 despite earning large profits. Profits in 2013 were as high as 250 million euros. Franchises operating in Europe and Russia pay McDonald’s royalty fees for using its brand name.
The first tax ruling in Mar 2009 allowed McDonald’s to continue operations without paying any tax in Luxembourg as the company was liable to taxation in the U.S. This was done to prevent double taxation. But contrary to Luxembourg tax authorities’ assumption, the profits were not taxable in the U.S. as well.
In the second ruling issued in Sep 2009, Luxembourg authorities confirmed that McDonald's Europe Franchising was not required to pay taxes in Luxembourg even if the company was not liable to pay tax in the U.S.
The European Commission’s role would be to establish whether the franchise is getting a favorable tax treatment that breaches EU state aid rules.
Reportedly, McDonald’s has paid over $2.1 billion in taxes in the European Union between 2010 and 2014. However, if the European regulatory body can justify that the company has been unfairly benefitted, it may result in hefty tax payments for McDonald’s. Nonetheless, McDonald’s is confident that the outcome of the inquiry will be in its favor.
Currently, McDonald's holds a Zacks Rank #2 (Buy).
Top-ranked stocks from the restaurants industry worth considering are BJ's Restaurants, Inc. BJRI, Jack in the Box Inc. JACK and Shake Shack Inc. SHAK, all sporting a Zacks Rank #1 (Strong Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment