McDonald's to Move Non-U.S. Tax Base to the U.K.
December 08 2016 - 10:19AM
Dow Jones News
By Natalia Drozdiak
BRUSSELS-- McDonald's Corp. on Thursday said a large portion of
its non-U.S. income would be taxed in the U.K. following a
restructuring that shifts operations away from Luxembourg amid a
probe by the European Union competition authority over its tax
arrangements.
McDonald's said it had created a U.K.-based international
holding company that would have "responsibility for the majority of
royalties received from licensing the company's global intellectual
property rights outside the United States." It added in a statement
that the profits of the new international holding company would be
subject to U.K. corporation tax.
The Luxembourg office will retain responsibility for restaurants
in the country, but other functions will transfer to the U.K
holding company, McDonald's said.
The move comes as the European Commission, the EU's executive
arm, investigates the company's tax affairs in Luxembourg. The
commission, which opened the probe last December, alleges that a
deal Luxembourg granted the fast-food chain in 2009 may have
illegally reduced its tax burden and breached competition
rules.
Brussels could order the fast food giant to pay back as much as
EUR1.5 billion ($1.6 billion) in unpaid taxes between 2009 and 2015
to Luxembourg, according to an October statement by U.S. and
European trade unions, which based its information largely on the
company's public financial statements.
McDonald's says it received no special treatment and paid all
taxes it owes. On Thursday, the company said it paid more than $2.5
billion in corporate taxes in the EU between 2011 and 2015.
McDonald's said it chose the U.K. for its new holding structure
because of the language, connections to other markets and the large
number of staff working there. The fast food company said the new
structure would help reduce expense and support future growth
plans, particularly those around refranchising projects.
U.K. tax authorities are also scrutinizing McDonald's, according
to a company filing uploaded on a government website. In the
report, McDonald's said it has set aside GBP11.5 million ($14.5
million), in relation to discussions with the British tax
authorities "in an ongoing transfer pricing review initiated in
2011 covering the years since 2009."
McDonalds's move is the latest from multinational corporations
that are rearranging their legal structures to keep up with a
global shake-up in tax rules.
There have been efforts by governments, particularly in Europe,
to wring more revenue from multinationals that shift profits to
jurisdictions where they are subject to little or no income tax.
This is often done by paying intra-company royalties that reduce
taxable income in certain countries.
In 2015, Amazon.com Inc., which is also under investigation by
the EU, changed its European structure so it would collect customer
revenue from subsidiaries in additional member countries, instead
of funneling it all through Luxembourg. The company has said it
received no special treatment from Luxembourg.
Other companies have changed their structures, too.
In April, Facebook Inc. began directing big U.K. clients to
start writing their checks to a Facebook affiliate in the country,
rather than funneling that revenue through low-tax Ireland and then
on to the Cayman Islands. Plus, Alphabet Inc.'s Google said in
January that it would start attributing some revenue from Google
clients in the U.K. to its local unit.
Both companies' moves are expected to boost income taxes paid in
the U.K.
Write to Natalia Drozdiak at natalia.drozdiak@wsj.com
(END) Dow Jones Newswires
December 08, 2016 11:04 ET (16:04 GMT)
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