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.