McDonald's accused of avoiding €1bn in taxes

Fast-food giant McDonald’s has avoided paying €1 billion in tax across the EU, and should be included in the EU’s probe on ‘sweet-heart’ tax deals, according to a report published Wednesday (25 February).

The report, published by the European Federation of Public Service Unions, its US-Counterpart and the charity War on Want, accuses McDonald’s of “aggressive and potentially abusive optimisation of its structure which has led to the avoidance of significant amounts of tax across the continent".

It concludes that “it is likely that the company reached a secret tax deal with Luxembourg”.

In July 2009, the Happy-Meal maker restructured its business by moving its headquarters from London to the Swiss city Geneva.

It also created McD Europe Franchising Sàrl, a Luxembourg-resident intellectual property holding company with a Swiss branch, after the Grand Duchy introduced a tax policy change allowing companies to benefit from significant reductions to their tax rate on income earned from intellectual property.

Luxembourg’s “intellectual property box” rule reduces the normal corporate tax rate on most royalties from 29.2 percent to 5.8 percent of taxable income.

As a result, McDonald’s paid a €16 million tax bill on royalty payments worth more than €3.7 billion, according to the report. In 2013, it paid €3.3 million in taxes across Europe, including a mere €3,000 in Luxembourg.

The company had 13 employees in 2013.

Like other fast-food multinationals, much of McDonald’s profitability depends on its franchising model, under which it receives royalty and rental payments from franchisees, rather than through direct corporate operation of stores. In Europe, almost three quarters of McDonald’s 8,000 stores are operated by franchisees.

The report also asserts that since McDonald’s paid an effective tax rate of 1.4 percent on its earnings, “this suggests that these extremely low tax rates are likely to be the result of a preferential tax deal with Luxembourg that would be similar to those revealed" by a international investigative journalists (ICIJ) late last year.

In a statement, McDonald’s said it had complied with all applicable tax rules, saying: "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."

The European Commission launched a series of investigations last year into whether sweetheart tax deals between Luxembourg and Amazon, and car manufacturer Fiat amounted to illegal state aid. Similar probes are also under-way on the tax arrangements of software giant Apple in Ireland, and Starbucks in the Netherlands.

For its part, the European Parliament set up a Special Committee on Tax Rulings earlier this month.

“There needs to be an informed debate about how much multinational companies contribute to the societies where they operate”, said Nienke Palstra, Senior Policy Officer at Transparency International EU in statement on Wednesday.

“The steady drip-feed of investigations and leaks gives a partial picture at best. A transnational problem needs a transnational solution - that is why the EU must act to ensure that companies report this information as a matter of routine,” she added.

The lobby group wants the European Commission to propose legislation requiring multinational companies to publish country-by-country reports detailing financial data such as revenues, taxes paid and staff numbers on a country-by-country basis, a move which has been backed by the European Parliament.