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McDonald’s pays €1.2bn to end Luxembourg tax structure probe

McDonald’s pays €1.2bn to end Luxembourg tax structure probe

2 min. 16.06.2022
French authorities alleged that the fast food chain shifted profits to its Luxembourg unit to avoid higher taxes
McDonald's paid €1.2bn to settle a criminal probe into its Luxembourg tax structure
McDonald's paid €1.2bn to settle a criminal probe into its Luxembourg tax structure
Photo credit: Shutterstock

McDonald’s Corp. agreed to pay 1.25 billion euros to settle probes in France where the Big Mac maker was accused of dodging taxes by unfairly shifting revenue to Luxembourg and Switzerland.

McDonald’s agreed to a €508 million settlement to end a French criminal probe into tax fraud allegations as well as the payment of an extra €737 million in back taxes and penalties.

Paris judge Stephane Noel detailed the amounts during a Thursday hearing where he approved the McDonald’s settlement. Under the terms of the deal, the firm didn’t plead guilty.

Top financial prosecutor Jean-Francois Bohnert said the total amount to be paid by McDonald’s is two and a half times larger than the taxes it skipped - nearly 470 million euros.

“It’s therefore a genuine punishment,” Bohnert said.

The company’s French unit said in a statement that over the past few years, it carried out “technical discussions” with tax and criminal authorities to reach an agreement on the fiscal framework for the use of the McDonald’s brand and know-how for 2009 to 2020.

McDonald’s has faced scrutiny over its taxes, and its own unions complained to French authorities and European Union officials that it unfairly shifted profits.

While the French case ends with a penalty, the burger maker won a rare reprieve at EU level in 2018 when competition regulators dropped a separate investigation into the legality of the double non-taxation of certain McDonald’s profits running through Luxembourg.

The French criminal case took several years to come to a conclusion. It was kickstarted by two complaints from McDonald’s employees, including one lodged at the Parquet National Financier in 2015. The following year, investigators swooped in on McDonald’s French headquarters west of Paris to gather evidence.

The investigations focused on so-called transfer-pricing arrangements on commercial transactions between company units, often denounced as unfair methods to shift profits to lower-taxation jurisdictions.

McDonald’s was suspected of having unfairly hiked over a decade ago the level of royalties French entities paid from 5% to 10%, Prosecutor Sebastien de La Touanne said.

“This modification of the royalty seemed to have no justification,” he said on Thursday. De La Touanne added that it didn’t take into account the French entities’ financial efforts to develop their local activity and wasn’t in line with international standards.

During the hearing, Judge Noel also highlighted the country’s importance for McDonald’s.

“France is the group’s second-largest market in terms of revenues,” he said.

©2022 Bloomberg L.P.

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