McDonald’s And Luxembourg – EU Says Paying No Tax Is Legal

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The European Union has announced the result of its investigation into McDonald’s and the deal the company had with Luxembourg. All entirely legal they say – despite the fact that no taxes were being paid. This will of course enrage the usual types but it seems fair enough. For the EU doesn’t actually have the right or power to comment upon particular tax rates:

BRUSSELS (Reuters) – McDonald’s avoided having to repay millions of euros in back taxes after EU antitrust regulators said that its tax deal with Luxembourg was not illegal, citing quirks in the Grand Duchy’s bilateral tax treaty with the United States.

This is indeed what was said:

Yes, even despite this:

Rather than state aid, the commission found tax loopholes that had allowed a McDonald’s franchising unit to avoid paying taxes on either side of the Atlantic. Ms. Vestager said Luxembourg’s treatment of McDonald’s defies tax fairness but doesn’t amount to a special deal because it is in line with a U.S.-Luxembourg double-taxation treaty.

The basic background here is that the details and rates of taxation are for the nation states to decide upon. It’s not an EU competence. However, state aid is indeed an EU competence and they’re allowed to root that out or demand its repayment where they find it. The difference between tax problems and state aid? If it’s available to all who structure themselves the right way then it’s tax not state aid. If it’s only available to the favoured few then it’s state aid. Perhaps not exactly and wholly but roughly enough.

So, the EU found that anyone who structured themselves in this manner could have a tax free deal. Thus it’s not state aid. And, therefore, nothing for the EU to do anything about.

This will come as a disappointment to those insistent that all business should just be paying more in tax. But, the Apple/Ireland case apart which seems to hinge on the same distinction, something of a comfort to those who believe in the rule of law.