McDonald’s Corp. shrugged off Brexit by announcing plans to switch its non-U.S. tax base to the U.K., ditching tiny Luxembourg where its fiscal arrangements are under attack from European Union regulators.
In an apparent vote of confidence in the U.K., the hamburger giant said Thursday it’s creating a new international holding company based in Britain, which decided in June to quit the EU. The new company will be responsible for most of the royalties received from licensing McDonald’s intellectual property rights outside the U.S. It will pay U.K. corporation tax, according to an e-mailed statement.
“The reasons for changing the location of the corporate structure to the U.K. were sound before Brexit and remain so beyond it,” the company said. “These strengths are unlikely to change as the U.K. negotiates leaving the European Union.” The Big Mac maker cited the “significant number of staff based in London working on our international business, language, and connections to other markets.”
McDonald’s is embroiled in a yearlong EU probe over allegations it benefited unfairly from super-sized tax breaks in Luxembourg. Trade unions and consumer groups alleged the company avoided more than 1 billion euros ($1.1 billion) in taxes in Europe between 2009 and 2013. An EU official said earlier this year that the McDonald’s case shows “just how far some companies push tax authorities to avoid paying any taxes.”
Amid the barrage of criticism, McDonald’s has insisted it hasn’t broken any rules and said Thursday it “pays a significant amount of corporate taxes.” From 2011 to 2015, “we paid more than $2.5 billion in corporate taxes in the EU, with an average tax rate approaching 27 percent,” it said. The company generates about two-thirds of its revenue outside the U.S.
Alex Cobham, chief executive of campaign group Tax Justice Network, said the McDonald’s announcement “provides a more public example of what has been happening quietly, which is the winding-down of many of the structures used to shift profits from across the EU into Luxembourg.”
The European Commission said last year that one McDonald’s unit has paid no tax in Luxembourg since 2009 despite recording large profits. The company’s French offices were inspected by the country’s fiscal authorities in 2013.
Luxembourg’s Finance Ministry declined to comment and the U.K. Treasury didn’t immediately respond to a call.
Amazon.com tax deals with Luxembourg are also being probed by the EU, which in August ordered Apple Inc. to pay back as much as 13 billion euros plus interest over tax arrangements with Ireland that regulators said were illegal.
While Luxembourg has a corporate tax rate of as low as 20 percent, many multinational corporations received tax rulings that lowered effective taxes on profits transferred to the country. Leaked documents from 2014 showed that more than 340 companies such as PepsiCo, Ikea and FedEx transferred profits to the country through tax arrangements.
The U.K. taxes 20 percent of company profits, a rate that will fall to 19 percent in April. Chancellor of the Exchequer Philip Hammond last month reaffirmed a commitment to cut it to 17 percent in 2020. Prime Minister Theresa May told business leaders last month she wants Britain to have the lowest corporation tax rate in the Group of 20.
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