McDonald's Accused Of Avoiding More Than $1 Billion In Taxes

Fast food restaurant juggernaut McDonalds Corp MCD stands accused of avoiding more than $1.1 billion in taxes between 2009 and 2013 by channeling European revenue through a Luxemburg subsidiary. According to a report by Reuters, the European Commission is being called by labor unions and the War on Want charity to investigate the tax practices of McDonalds.
IP licensing
Back in 2012, Reuters pointed out how companies such as McDonalds, Subway and Burger King BKW get away with paying very little tax on a large portion of their revenue by sweeping revenue, in the form of intellectual property (IP) fees, to subsidiary units that are set up in tax havens.
For example, Burger King recipes and branding were originally created in the U.S. However, European units pay IP fees to the company’s European office in Zug, Switzerland, where the tax rate can be as low as 2 percent. If the IP fees were paid to an American location, Burger King would be paying as much as 39 percent in taxes.
McDonalds pays 1.4 percent tax rate
McDonalds’ version of the story is that McD Europe Franchising Sarl in Luxembourg received more than $1 billion in fees from European McDonalds franchises in 2013. Filings show that somehow McDonalds managed to pay only a 1.4 percent tax rate on $288 million in 2013 profits, likely exploiting IP tax loopholes.
Tax reform debate
This latest accusation only fuels the fire raging over corporate tax reform in the U.S. Restaurant chains are not the only companies avoiding U.S. tax rates by routing money overseas. According to a recent report by Cantor Fitzgerald, the majority of the $150 billion in cash that tech companies such as Apple Inc AAPL, Google Inc GOOG GOOGL and Amazon.com Inc AMZN have on their balance sheets is invested overseas to avoid U.S. taxes.