McDonald’s Gets Dinged By The French Taxman
IT’S something of a pity that the various taxmen across Europe don’t actually understand the tax laws that they’re supposed to be administering. We had the case a couple of weeks back of Italy trying to impost the “Google Tax” in clear violation of EU law and here we’ve the French taxman going after McDonalds. Again, seemingly ignorant of the fact that they’re just not allowed to do this under EU law.
The argument being used is that McDonalds has been charging the French franchises royalty payments. OK, that’s how the whole group works, it’s the franchisees who own the stores and McDonalds charges them a fee for using the name and the menu: a royalty in short. Those royalties are then collected by another McDonalds group company outside France.
McDonald’s is only the latest multinational company to come under scrutiny for allegedly shifting profits and avoiding corporate income taxes through the use of royalty fees paid between business units. French officials in recent years have investigated Google Inc., Amazon.com Inc., Microsoft Corp. and other U.S. companies for shifting profits, though the companies and many tax experts say their arrangements are legal.
In Europe, McDonald’s has set up a thicket of corporate entities to hold real estate and restaurants, as well as to collect royalties from franchise restaurants owned by outside companies. Many franchisees in Europe, for instance, pay a percentage of their annual revenue to a Luxembourg company called McD Europe Franchising S.à.r.l., according to a company filing. The Luxembourg company then pays an annual fee to the parent company.
Quite, note that point, that this is entirely legal. But we can go further than this. It’s not just legal in the sense of being a dodge that can be used. It’s legal in the sense that the law expressly allows people to do this. Here:
The I+R Directive is designed to eliminate withholding tax obstacles in the area of cross-border interest and royalty payments within a group of companies by abolishing:
withholding taxes on royalty payments arising in a Member State, and
withholding taxes on interest payments arising in a Member State.
These interest and royalty payments shall be exempt from any taxes in that State provided that the beneficial owner of the payment is a company or permanent establishment in another Member State.
As long as those royalties are going to another company within the EU then it is actually illegal for France to try and tax them. And yes, EU law does over ride French or any other national law.
It’s just amazing that people don’t seem to understand the system that we’ve all signed up for.