Mc Donald’s has agreed to pay Euro 1.25 billion in fines (Euro 508 million) and tax settlement ( Euro 737 million) to avoid legal cases over tax evasion, and tax avoidance between 2009 and 2020.
Investigators had since 2014 been probing whether fees paid by McDonald’s French operation to its European parent company in Luxembourg for use of the chain’s brand in fact served to artificially slash its profits. These let the company “soak up a large amount of the profits made by restaurants in France,” the judge added.
The largest-ever tax fine seen in France, Euro 2.1 billion, was paid by aircraft builder Airbus in 2020. The case of McDonald’s is seen as the second largest settlement case in the History of French taxation.
McDonald carried out a transfer pricing intra-group restructuring in 2009 and increased royalty from 5% to 10% of restaurant turnover. The payment was made from McDonald’s companies in France to the Swiss branch of the group company in Luxembourg. These payments were not taxable in Luxembourg or Switzerland, or the USA.
Such restructuring has been under the French tax lens for a long time with the issues around double non-taxation and staking up of profits without the adequate substance being the key aspects questioned by the French authorities.
This agreement ends a tax case and a judicial investigation without acknowledging fault. It is heard that McDonald’s France is working proactively with French tax authorities to agree on the current and future level of brand and know-how fees.
With the introduction of the BEPS Action plan, it is essential to build substance around any legal transaction. Gone are the days when tax avoidance was considered legal and accepted by the global economies as genuine tax and transfer pricing structuring. Tax morality and substance have won the debate and the multinational companies should focus on building stronger substance while undertaking any fancy structuring. This principle is applicable to all MNCs.