McDonald’s: Beware The Tax Whistleblower Unions

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Now that McDonald’s agree to pay France a blockbuster €1.25 billion back in taxes and fines, labor unions are calling A breakthrough for the association’s activism in the corporate tax space.

The story dates back to 2015, when a coalition of European and American labor organizations (the European Federation of Public Service Unions; the European Federation of Food, Agriculture and Tourism Trade Unions; and the Service Employees International Union) and the UK-based anti-poverty organization War on Want organized McDonald’s is accused of evading more than €1 billion of taxes in Europe by purposefully restructuring its European operations to take advantage of favorable tax rates in specific countries.

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The group was concerned about some of the restructuring undertaken by McDonald’s in 2009 to move its European headquarters from the United Kingdom to Switzerland and transfer its intellectual property to a new IP holding company based in Luxembourg.

At the time, Luxembourg implemented a lucrative IP box arrangement that significantly reduced tax rates on IP income. Those moves reportedly helped McDonald’s avoid €1 billion in taxes between 2009 and 2013, the coalition said in a 2015 report titled “sad food,

The report alleges that a Luxembourg subsidiary – McDonald’s Europe Franchising S.à.rl – received more than €3.7 billion in royalties during that five-year period, but paid only €16 million in taxes. As of 2013, the subsidiary’s effective tax rate was only 1.4%, according to the Coalition.

Those allegations have sparked considerable scrutiny at McDonald’s over the years. Shortly after the report became public, the European Commission announced that it would investigate a set of Luxembourg tax rules, which exempted the subsidiary from paying tax in that country. Since the subsidiary was also not taxable in the United States, the rulings created a double non-tax situation.

However, the commission closed the investigation after finding that the double nontaxation was due to a mismatch between Luxembourgish and US tax law, not because Luxembourgish authorities had changed the tax treaty between the two countries to benefit McDonald’s. Intentionally applied incorrectly.

In the meantime, McDonald’s reportedly revamped its corporate structure, as “titled” according to a May 2018 update from unions.sad food,

The report alleged that McDonald’s continued to play tax hopscotch in 2015 by moving its international tax base from Luxembourg to the United Kingdom and then moving McDonald’s Europe franchising S.à.rl’s headquarters from Luxembourg to Delaware. The unions alleged that McDonald’s took these steps to obscure its corporate activity and to potentially remove its activity from scrutiny by the European Commission after Brexit.

French officials became involved and began an investigation into the company’s French subsidiary. After years of investigation, McDonald’s will now pay €737 million in back taxes and €508 million in fines.

But the whole case raises the question: why would labor unions get involved in multinational tax cases, potentially undermining the interests of their members by engaging in large, complicated litigation that could expose member companies to hefty fines and reputation damage. Are?

some financial and accounting academics has been suggested That labor unions are heavily invested in preventing aggressive tax behavior because of the ongoing government scrutiny and the penalties generated by a culture of tax avoidance jeopardize the stability of their members.

It remains to be seen whether the McDonald’s case will create copycats; Over the years, unions have become vocal on topics such as corporate tax responsibility principles, but McDonald’s appears to be the first company to see an impact of this scale.

In that light, the McDonald’s agreement sets an interesting precedent, especially as the public becomes more interested in corporate tax matters.

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