McDonald’s Faces EU Probe For Alleged Tax Deal

The European Union generally makes it difficult for U.S. companies to operate within its borders. With more regulations surrounding business and labor practices and an overall difference in cultures, big U.S. companies like Wal-Mart (WMT), Amazon (AMZN) and Apple (AAPL) have met great opposition from regulators and citizens alike.

Now McDonald’s (MCD) is running the gauntlet, although the reason isn’t a matter of culture. The company’s Luxembourg unit has been accused of paying next to no taxes since 2009, neither in Luxembourg nor in the United States, on the income it has received there. The discrepancy is allegedly due to a tax deal the company was able to work out with the local government.

While Luxembourg is certainly allowed to pass its own tax laws, regulators are investigating whether the ruling violates EU law.

“A tax ruling that agrees to McDonald’s paying no tax on their European royalties either in Luxembourg or in the U.S. has to be looked at very carefully under EU state aid rules,” European Competition Commissioner Margrethe Vestager said in a statement. “The purpose of Double Taxation treaties between countries is to avoid double taxation – not to justify double non-taxation.”

Of course, Luxembourg officials deny giving McDonald’s or any other private company preferential treatment with its tax laws. They have also vowed to fully cooperate with the investigation. McDonald’s also denies any wrongdoing, stating that it complies with all EU tax laws and mentions that it has paid more than $2.1 billion in taxes in the EU from 2010 to 2014, an average tax rate of 27%.

How does this affect shareholders?

So far, it doesn’t seem that the news has fazed shareholders. In fact, after the stock closed at $113.39 following the announcement of the probe, it jumped to $116.20 on Friday, showing that shareholders seem to be just as confident as company brass that the investigation will end favorably.