Bloomberg News

McDonald’s Denies Magazine Report of French Tax Avoidance (2)

January 22, 2014

McDonald’s Corp. (MCD:US) denied a magazine report that it avoided paying taxes related to more than $3 billion of revenue in France since 2009, saying inspections by fiscal authorities at its French unit were routine.

McDonald’s said in an e-mailed statement that it “firmly refutes” the allegation by L’Express. The magazine reported that the French finance ministry suspects McDonald’s of reducing its tax obligations in France by redirecting revenue via branches in Geneva and Luxembourg. L’Express didn’t cite anyone.

The world’s largest restaurant chain is the latest U.S. company accused of circumventing taxes. In the past two years, Google Inc., Apple Inc., Amazon.com Inc. and Starbucks Corp. (SBUX:US) have been brought before U.S. Senate and U.K. Parliament committees probing their tax strategies.

McDonald’s fell 0.2 percent to $94.88 at the close in New York. The shares (MCD:US) gained 10 percent last year, trailing the 30 percent gain for the Standard & Poor’s 500 Index.

“From the corporate standpoint, we also can share that McDonald’s complies with applicable laws and regulations in the countries and jurisdictions where we operate our global business,” Becca Hary, a McDonald’s spokeswoman, said in an e-mail today.

McDonald’s, which has more than 1,200 stores in France, said it received a request in October from tax authorities to inspect its French headquarters in Guyancourt, near Paris as part of “regular monitoring.” The French unit of the Oak Brook, Illinois-based company and its 314 franchisees there have paid 1 billion euros ($1.4 billion) in corporate taxes since 2009, according to the statement.

Luxembourg Subsidiary

L’Express said McDonald’s uses a Luxembourg subsidiary called McD Europe Franchising SARL. That entity received more than $1 billion in royalties under franchise agreements for the rights to use “the McDonald’s restaurant system and related intellectual property in connection with McDonald’s franchised restaurants in Europe,” according to the subsidiary’s 2012 annual report. The unit said it acquired those rights from its U.S. parent company in 2009 and in turn must pay an annual fee to the U.S. parent.

The Luxembourg entity reported profit of $172 million and taxes of $3.2 million.

McDonald’s in 2012 cut about 4.1 percentage points off its tax rate because of “tax benefits related to certain foreign operations,” according to its most recent annual report filed with the U.S. Securities and Exchange Commission. It has accumulated about $14.8 billion overseas on which it has not paid U.S. income tax.

France’s Budget Minister Bernard Cazeneuve, who is responsible for clamping down on tax evasion, declined to comment on the report in a France Info radio interview today. He didn’t respond to calls by Bloomberg News seeking comment.

Tax Scrutiny

Company taxes have come under scrutiny as governments around the world step up efforts to close avenues for multinationals to channel profits through the lowest-tax locations.

The Group of 20 nations in September endorsed the Organization for Economic Cooperation and Development’s blueprint for cracking down on tax-avoiding strategies used by companies such as Google, Apple and Yahoo! Inc. That plan includes proposals making it harder to shift profits by assigning intellectual property like patents to offshore units. The European Commission is also reviewing its own rules governing how corporate profits can be shifted into tax havens.

McDonald’s, which is struggling to attract diners amid fierce competition and a shaky global economy, will report fourth-quarter earnings (MCD:US) tomorrow. The company in 2012 got 39 percent of its revenue from Europe.

To contact the reporters on this story: Andrew Roberts in Paris at aroberts36@bloomberg.net; Leslie Patton in Chicago at lpatton5@bloomberg.net; Jesse Drucker in New York at jdrucker4@bloomberg.net

To contact the editors responsible for this story: Celeste Perri at cperri@bloomberg.net; Robin Ajello at rajello@bloomberg.net


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Companies Mentioned

  • MCD
    (McDonald's Corp)
    • $93.22 USD
    • -0.45
    • -0.48%
  • SBUX
    (Starbucks Corp)
    • $79.44 USD
    • -0.59
    • -0.74%
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