Amazon, McDonald's Face EU Tax Audit Similar to Apple's

The two U.S. companies are also being investigated for their European tax deals.

ByABC News
August 30, 2016, 3:37 PM

— -- From Cupertino to Copenhagen, the top business story across the world today is the European Commission's slapping Apple with a massive $14.5 billion tax bill.

The ruling, which ABC News described at length today, is the result of a three-year investigation by the commission, which is the executive branch of the European Union, that concluded Ireland gave Apple unfair tax advantages. The commission claims this gave the tech giant an effective tax rate as low as 0.005 percent at some points. Both the Irish Finance Minister and Apple have denounced the ruling and say they will seek appeals.

While Apple is the subject of today’s ruling, the European Commission (EC) is currently looking into the tax dealings of two other prominent U.S. companies: McDonald’s and Amazon.

Both cases involve the tiny country of Luxembourg, nestled between Belgium, France and Germany, in the heart of Europe.

PHOTO: Amazon distribution center headquarters in Swansea, West Glamorgan, South Wales, U.K.
Amazon distribution center headquarters in Swansea, West Glamorgan, South Wales, U.K.

Open Investigation: Amazon

In October 2014, the EC opened an investigation into Amazon’s tax arrangements with Luxembourg, saying in a press release from the time, that a tax ruling in favor of Amazon from 2003 might be in violation of the trade bloc’s rules.

"It applies to Amazon's subsidiary Amazon EU Sàrl, which is based in Luxembourg and records most of Amazon's European profits," the commission said. "Based on a methodology set by the tax ruling, Amazon EU Sàrl pays a tax deductible royalty to a limited liability partnership established in Luxembourg but which is not subject to corporate taxation in Luxembourg.”

"As a result, most European profits of Amazon are recorded in Luxembourg but are not taxed in Luxembourg," the commission added in the statement.

Amazon’s sales in Europe are structured in a way such that all transactions are between the Luxembourg company and the customers, according to Reuters.

Those sales -- which total almost €14 billion ($15.6 billion at today’s rate) -- are not counted as profit, Reuters reported, because they are written off as fees to a parent company, through a tax-exempt partnership.

Amazon declined to comment further to ABC News, citing the ongoing investigation, but referred to a statement provided to Reuters previously, in which the company said: "Amazon has received no special tax treatment from Luxembourg, we are subject to the same tax laws as other companies operating here."

PHOTO: People walk past a McDonald's fast-food outlet, on Feb. 26, 2015, in northern France.
People walk past a McDonald's fast-food outlet, on Feb. 26, 2015, in northern France.

Open Investigation: McDonald’s

McDonald’s has also drawn a concerned eye from the EC over its activities in Luxembourg.

In December, the commission said that it was opening an investigation into McDonald’s, alleging that "McDonald's Europe Franchising has virtually not paid any corporate tax in Luxembourg nor in the U.S. on its profits since 2009," which were made from "royalties paid by franchisees operating restaurants in Europe and Russia for the right to use the McDonald's brand and associated services."

The commission said that two tax rulings from Luxembourg allowed the company to operate without paying taxes in Luxembourg or the U.S. on its European profits.

Those profits were more than €250 million ($278 million dollars at today's rate) in 2013, the commission said.

The company was paying tax in Switzerland, according to the statement released by the EC.

McDonald’s did not return ABC News’ request for comment.