But McDonald’s hasn’t avoided any tax

According to British charity War On Want – which tackles poverty around the world – McDonald’s opened a Luxembourg-based offshoot called McD Europe Franchising Sarl in 2009, to deal with royalty revenues paid by franchises using its brand. This happened ‘immediately after’ a policy change in the country which allowed these kinds of intellectual property firms to pay lower taxes on income.

The company then routed billions in royalties from its European operations to the Luxembourg outpost, minimising its tax liabilities, the report said.

That same year, McDonald’s also shifted its European headquarters from London to low-tax Geneva, which was viewed as another attempt to reduce its liabilities.

….
The report found that McDonald’s Luxembourg branch registered revenues of £2.7billion over five years, but paid less than £12million of tax. If it had kept these royalties in Europe as ‘profit’, rather than diverting them through Luxembourg, it would have had to pay more than 60 times this amount.

And if it had kept its headquarters in the UK and paid British corporation tax on all the royalties it earned from its European subsidiaries, HM Revenue and Customs could have netted up to £818million extra between 2009 and 2013.

Even if McDonald’s had only paid UK corporation tax on the money it made from British royalties, the taxman would have received £75million more.

That money gets taxed when they take it back into the US. And they do take it back into the US. There’s no large untaxed offshore profits in the McDonald’s accounts.

While the schemes are not illegal, firms are coming under growing pressure to pay tax in the country they sell their goods – rather than where various headquarters are based.

That’s simply not the way that corporation tax works. Even HMRC tell us that.

And there’s a more serious point here as well. Whatever arrangement over royalties Mcd’s has with franchises it m,ust have the same arrangement with direcrtly owned stores. Because that’s how the tax system does work: on that arm’s length, transfer pricing basis. It would be illegal of McD’s not to charge itself a royalty.

25 thoughts on “But McDonald’s hasn’t avoided any tax”

  1. The transfer price can be imputed for tax rather than actually charged. And HMRC certainly wouldn’t raise a challenge if a zero transfer price was imputed on royalties to Luxembourg
    Of course the Luxembourg authorities could then raise a challenge. A zero transfer price would be difficult to explain and certainly wouldn’t get McDonald’s a Fair Tax Mark. So better to be safe than sorry.

  2. Aren’t all MacDonalds restaurants franchises? Owned by individuals in the UK, but operated to very strict franchise rules such that they look like they are all managed alike? And those franchisees have to pay for the use of the MacDonalds brand – thats why everyone walks through their door. And the parent company royalty collecting arm can legitimately be located anywhere – its purely a back office function.

    Locating the royalty collection company in a low tax country is akin to buying a car because it has a low car tax band, or putting your money in an ISA, which as we are constantly told is not tax avoidance.

  3. @JIm.

    No.

    Some McDonalds are franchises, some are owned directly.

    But yes, McDonalds is an international organisaiton with a large European presence. It has to have a European HQ somewhere to hold European franchsises so why not put it in the place that gives it the best deal?

    Nothing wrong with that. The idea that you can compare the tax it would have paid had it done something differnet with the tax it does pay is facile. Might as well compare the profits it makes with the profits it would have made had it bought it’s ingrediants from a supplier that charged twice as much.

    We have morons dictating the tax debate.

  4. Jim,

    1,200 restaurants in the UK, about 1/3 of which are company owned, the rest are franchises.

    More idiocy from the left, McDonald’s is probably one of the most socially responsible companies in the world, but because they are a big name with global operations they must be the ‘bad guy’.

  5. So Much for Subtlety

    bloke (not) in spain – “What’s not to hate?”

    Don’t forget sourcing beef from the Third World and so providing richer lives and job opportunities to non-White people. Or raping the Brazilian rain forest as the Guardian calls it.

  6. I read somewhere that in the US, McDonalds has created more dollar millionaires out of its franchaisees than any other organisation.

    i suspect their UK franchaisees are doing just as well. At my last firm one of my clients was a family that had a couple of KFC franchaises – a similar model – which cost around £250k each to buy but which once established were throwing off profits of very nearly the same amount each year.

    If the whiny left had their way we’d be living in communes and starving.

    What a bunch of cnuts.

  7. Got to love the McDonalds system, one local guy I know of left uni in the early 90s and now has several McD franchises. Not bad for a kid with no money who got a job working in a local McDonalds.
    As a company they do not make the best burgers in the world, most people who can cook can make a better burger.
    They merely have the best selling burgers. 🙂
    A sales system, branding, quick provision of food and of course the primary issue of any retail business, location.

    The month I moved to my village there was a local McDonalds opened in the middle of the village. Its still there 15 years later, opposite the chippy.
    I use it regularly.

  8. Ah but the labour organizers behind the campaign know all this. They also know that with the likes of Margaret Hodge screaming at completely legal taxpayers and at HMRC for not collecting tax not actually owed, that the general public views any accusation of “tax dodging” as a scarlet letter. Why well known tax fighter Richard J Murphy says MacDonalds is doing something wrong so it must be true. Unfortunately there are more readers of the Guardian who are potential MacDonald boycotters than those who enjoy Tim’s “Ragging on Ritchie”.

    This is a classic labour pressure tactic, where they are trying to show MacDonalds that it is financially better to allow unions than to suffer huge sales losses because of a consumer boycott.

  9. According to British charity War On Want – which tackles poverty around the world

    “Tackles” my arse. War On Want would make poverty permanent.

    From trying to abolish sweatshops so as to take bread out of the mouths of Asian children, to promoting “Food Sovereignty” – aka perpetual poverty – in Africa, to providing moral support for Palestinian terrorists, War On Want has never seen a bad idea that it didn’t immediately fall over its own sandals in the rush to endorse.

    And it isn’t a “charity”, as the man on the Clapham omnibus would understand it. It’s as far as it’s possible to be from the humble Sally Army lady doling out soup and kind words to the wretched. War On Want is a far-left political campaign vehicle run by people who have never done an honest day’s work in their lives:

    http://www.waronwant.org/about-us/contact-us/council-of-management

    We need war on War On Want. Sack the fake charities. Burn their headquarters. Strip the flesh and salt the earth! Then seed it with landmines and depleted uranium.

  10. Not sure what this has to do with “fighting” poverty in the third world.

    Personally I can’t think of anything middle-class lefties would despise more than someone with no qualifications becoming a millionaire by running successful McDonalds franchises. It has everything: US fast food, capitalism, the “lower orders making good”, success, wealth. Imagine your dismay at slaving through a three year course on Comparative Sexuality and Diversity and finding that bloke you thought was thick and ignorant is far, far richer than you.

  11. If it had kept these royalties in Europe as ‘profit’, rather than diverting them through Luxembourg

    Luxembourg is in Asia? Africa? Oh no, it’s in Europe. Part of the EU, too.

    Perhaps we can conclude that War on Want is tax dodging because it is not so much engaged in charity work as ill-informed political posturing, and as such should not be entitled to the tax breaks it enjoys.

  12. The idea that you can compare the tax it would have paid had it done something differnet with the tax it does pay is facile. Might as well compare the profits it makes with the profits it would have made had it bought it’s ingrediants from a supplier that charged twice as much.

    Indeed. How this became an article is anyone’s guess.

  13. I love Maccy D’s.

    Their food is barely edible shite, but as a babydaddy I have found myself driving around at 2 am to quiet a screaming infant through the magical power of his car seat and allow his mother a couple of hours precious sleep.

    At 2 am, after you’ve been working all day and wrangling an upset teething tiny person all night, a black coffee from the cheerful Welsh girl at the 24hr McD’s drive through is just the job.

  14. So lefties hate MacDonald’s for being MacDonald’s; we love tyhem for the same reason. All irrelevant, the quetion at hand is whether MacDonald’s avoids tax. (Meaning UK tax, no?)

    Those franchises’ entire business model and profit-making capacity is built on macDonald’s branding. From the architectural design and familiar layout of their restaurants, the livery of those restaurants and staff, the menu, the taste of that menu, the sourcing of their ingredients, the pricing policy. In short, everything. So of course MacDonald’s is entitled to charge a franchise fee, royalties to those restaurants. And MacDonald’s is not a native UK brand. So even if a MacDonald’s company in the UK is charging the restaurants for those things, it in turn will need to pay another company somewhere else for the right to collect it. In short the revenue and the tax on that revenue simply does not belong in the UK. They may belong in the U.S; they absolutely do not belong to the UK exchequer. Is Richard Murphy now batting for the U.S. State?

    Interestingly this is a good example to show the designers of the Unitary Taxation ‘formula’ – which aims to tax worldwide profits and allocate them around the world in a proper and equitable basis etc – for the knobended wankers they are. For they wish to ignore all intangible assets.

    Charge and allocate tax revenues based upon worldwide profits – and then ignore the very thing that makes that profit. Why? because they are left-wing demagogues masquerading as academics and tax technicians.

  15. As DavidSLesperance points out, the people behind this ‘research’ are fully aware that it is entirely specious. The same applies to almost all the current bout of anti-avoidance campaigning.

    War on Want’s website says its mission is to fight the causes of global poverty. I’m not sure how agitating about taxation in the world’s richest nations is part of this.

  16. So McDonalds has defrauded civil society of nearly a billion in tax, thus depriving the NHS of 40,000 nurses? And the Tories have not done anything about it? THIS MUST END.

    Can I get my £100k p/a Guardian gig now plz?

  17. McDo are a great company, Old Man Kroc still presides over its “restaurants” though he’s long departed.

    Service it McDo is very good, better than its competitors, (though not so the food itself), and many (of many kinds) could learn a thing or two about putting those you earn your living from at the front and heart of what you do.

    It was invented by the brothers McDonald in San Bernadino,California in the late fifties. Ray Kroc heard of their success, paid a visit, saw the vision and the rest is history.

    Mine’s a sausage and egg mcmuffin, please.

  18. The only time I have ever eaten a McDonald’s burger was after I and another guy simultaneously arrived at a girl’s office to take her out to lunch when she had gone to a business meeting elsewhere – he steered me round to a McD and seemingly enjoyed the burger – I did not.
    He later – you may think he was an unbelievable nice guy – invited me a sports club where I played my only game of badminton in my life. He actually was a nice guy and, even later, married the girl who remained a friend until my wife accidentally threw away the book in which I kept all the adresses of my friends.
    McDonalds are much better at training staff than at almost anything else and certainly than at making hamburgers.

  19. “For they wish to ignore all intangible assets.”

    They don’t believe in intangible assets. Murphy is on record as stating that IP rights are used soley for the purpose of tax avoidance. This would be news to my clients.

    Until such moment as *their* royalty cheque lands on the mat. Or some copyright infringer threatens *their* royalty cheque.

  20. “McDonalds are much better at training staff than at almost anything else”

    True. Several of my colleagues worked at McDonalds at university and all say that the quality of training was first rate.

    They all said it was a great place to work and, despite the perception, staff were treated very well. This was in restaurants in all parts of the UK, so can’t be put down to an individual manager.

    Sometimes, if having a bad day at work, they will sometimes say they wish they’d stayed at McD’s and gone down the franchise owner route.

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