No fries with that... McDonald's dodges taxes, gets away with it

Company took advantage of a treaty between Luxembourg and the USA.

French and Belgian investigators are looking into McDonald's dealings with Luxembourg, and how McDonald's convinced Luxembourg's authorities they did not have to pay all of their taxes.

LOS ANGELES, CA (California Network) - The European Commission is researching a tax deal that fast food giant, McDonald's, brokered with Luxembourg. Under the deal, the massive restaurant chain did not have to pay taxes on some of their royalty revenues.

A special deal between Luxembourg and the company allowed them to avoid paying some taxes, which others argue gives an unfair advantage to McDonald's which isn't available to other businesses in similar circumstances. The fact that McDonald's got a special deal suggests there's more to the deal than officials have admitted.

McDonald's European Franchising division is located in Luxembourg. A treaty between the USA and Luxembourg agrees each nation will not tax revenues that are taxed in the other state.

In 2009, Luxembourg decided that the McDonald's would not have to pay taxes on money earned in the U.S., because the money was already subject to taxation there. However, investigators have since learned the company did not pay any taxes in the U.S. because officially the company has no taxable presence in the U.S., according to U.S. law. After the money was moved to Europe, it was then moved back to the USA, supposedly taxed --except it wasn't.

This decision allowed McDonald's dodge taxes in both the U.S. and Luxembourg.

The European states are upset because Luxembourg's sweetheart tax deal with McDonald's, gives the company an unfair advantage. It also unfairly attracts business to Luxembourg which could set up a similar scheme. The EU has the option to withhold some payments to Luxembourg if the tiny country is found to have broken the law.

One problem faced around the world is that some countries offer generous tax incentives to big business to relocate there. This costs jobs, and tax revenues in the original country as businesses flee overseas.

One novel solution would be an international tax that is the same, thus eliminating the incentive for a businesses to evade taxes by going overseas.

If the European Commission concludes the government of Luxembourg gave McDonald's an unfair deal, it will be Luxembourg, not McDonald's that pays.

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