McDonald’s Accused of Avoiding €1.2 Billion in European Tax

McDonald's
A McDonald's restaurant is pictured in Encinitas, California September 9, 2014. Mike Blake/Reuters

McDonald’s could have avoided as much as €1.2 billion in European tax by funnelling money into a Luxembourg subsidiary, according to a coalition of trade unions and a charity.

An in-depth report titled Unhappy Meal used financial accounts and press and research reports from McDonald’s and its subsidiaries to paint a picture of systematic tax avoidance following a company restructuring in 2009 which resulted in money being moved from high- to low-tax jurisdictions.

With the highest McDonald’s sales in Europe of €4.4 billion in 2013, France could have lost out on as much as €713 million in taxes between 2009 and 2013 according to the report written by trade union umbrella organisations EPSU, EFFAT, SEIU and UK campaign group War on Want.

They call for the European Commission to add McDonald’s to its ongoing Luxembourg tax investigations. FIAT and Amazon are currently under investigation for their tax arrangements with Luxembourg following the “Luxembourg Leaks”, an International Consortium of Investigative Journalists report into the complicated tax arrangements large corporations were taking advantage of in the tiny country to limit their bills.

The Commission reported in January of this year that Amazon’s arrangement could amount to state aid, where companies are given selective favourable treatment by a government and is generally against EU law. The allegations have proved embarrassing for the new president of the Commission, Jean-Claude Juncker, who served as prime minister of Luxembourg between 1995 and 2013. He also held the post of first finance and then treasury minister during his time in office.

McDonald’s has allegedly been moving money to a Luxembourg registered holding company - McD Europe Franchising Sàrl - which was set up in 2009 with intellectual property and franchising rights transferred to it as part of the company’s European restructuring.

As McDonald’s stores are largely run as franchises, royalty fees are paid from the stores to the rights holder, and the report says in Europe these fees amount to 5% of sales. If the intellectual property rights holder is established in a low tax or tax-free jurisdiction, then the overall tax bill could be greatly reduced.

According to the report McD Europe Franchising Sàrl had 13 employees in 2013, and received more than €833 million in royalty payments that year.

McDonald’s said in a statement: “McDonald’s complies with applicable laws, including payments of the taxes that are owed in each country in which we operate.  In addition to paying taxes on profits, we pay significant taxes for employee social contributions, property taxes on real estate, and other taxes as required by law.”