McDonalds

McDonald's is to be investigated over its tax affairs in Luxembourg, the European Commission has announced.

The Commission believes that the fast food giant holds deals with authorities in Luxembourg that allows it to avoid paying taxes in Luxembourg and the US on the money it makes in Europe and Russia.

Fellow US giants Starbucks and Amazon have faced similar investigations over their own tax affairs.

It is understood that a deal struck in 2009 resulted in McDonald's Europe Franchising not paying any corporation tax in Luxembourg, as long as it could prove it paid corporation tax in the US. The Commission also explained that in 2013, McDonald's reported profits of more than €250m (£177m).

It soon became evident that McDonald's European finances were not registered in the US for tax purposes, meaning the fast-food firm had no way of proving to the Luxembourg authorities that it was, in fact, doing as it promised.

A second deal, understood to have been struck in September, allowed McDonald's to pay no corporation tax in Luxembourg without having to prove it pays tax in the US. The European Commission said it will investigate whether or not it amounts to state-aid, which is illegal.

Margrethe Vestager, who leads the European Commission's EU competition policy, said: "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."

A McDonald's statement said: "McDonald's complies with all tax laws and rules in Europe and pays a significant amount of corporate income tax. In fact, from 2010-14, the McDonald's companies paid more than $2.1bn just in corporate taxes in the European Union, with an average tax rate of almost 27%.

"Additionally, we pay social, real estate and other taxes. Our independent franchisees, who own and operate approximately 75% of our restaurants in Europe, also pay corporate tax and many other taxes.

"We are confident that the inquiry will be resolved favourably."

Two months ago, the European Commission ordered Luxembourg authorities to recover €30m from car manufacturer Fiat Chrysler because their tax deals were deemed illegal. The Dutch authorities were ordered to do the same with Starbucks.