McDonald’s will move fiscal headquarters for the majority of its non-US operations to Britain, it said Thursday, following an EU crackdown on tax deals struck by multinationals including the fast-food giant.
McDonald’s is establishing a new Britain-based holding company to cover royalties from most licensing agreements outside the United States, shifting its tax base from Luxembourg.The profits will be subject to British tax, McDonald’s said in a statement that was immediately welcomed by the British government, which is under pressure to preserve economic stability as the country prepares to leave the European Union.
Prime Minister Theresa May has pledged to cut corporation tax to 17 percent by 2020 from the current 20 percent, prompting warnings by commentators in continental Europe that Britain is planning to become a “tax haven” post-Brexit.
“We welcome continued investment from companies around the world into the UK, particularly where that’s securing growth and increasing jobs,” May’s spokeswoman told reporters at a daily briefing.
Several tech giants including Facebook and Google have announced investment in Britain since the EU referendum in June but some companies, particularly in the finance sector, are considering relocation to continental Europe as a result of the Brexit vote.
McDonald’s made its announcement shortly after a senior official at France’s markets regulator told BBC television that Paris had received inquiries by large international banks with operations in London.
“McDonald’s selected the UK for the location of its new international holding structure because of a significant number of staff based in London working on our international business, language, and connections to other markets,” the company said.
McDonald’s under investigation
The EU launched a formal investigation in December 2015 into tax deals between the US giant and Luxembourg, saying its preliminary assessment was that they breached state aid rules.
The case against McDonald’s stemmed from a complaint by trade unions and the charity War on Want that accused McDonald’s of avoiding around one billion euros ($1.1 billion) in taxes between 2009 and 2013, by shifting profits from one corporate division to another, and paying no local tax in Luxembourg.
A McDonald’s spokesperson said the restaurant chain “pays a signficant amount of corporate taxes”. From 2011 to 2015, McDonald’s paid more than $2.5 billion in corporate taxes to the EU at an average rate of almost 27 percent, the spokesperson added.The move announced on Thursday means McDonald’s will close operations in Geneva.McDonald’s Luxembourg office will remain open, but functions related to business outside the country will shift to Britain.
McDonald’s said the move was consistent with a global reorganisation undertaken by recently appointed chief executive Steve Easterbrook, who has shaken up the structure as part of a turnaround to boost profitability.
Easterbrook was tapped in January 2015 to turn around McDonald’s fortunes after a lengthy slump saw the home of the Big Mac lose ground to other fast-food chains like Wendy’s and high-end brands such as Five Guys and Shake Shack.With more customers in Europe and elsewhere choosing to eat fast food, McDonald’s reported unexpectedly strong third quarter results in October, despite sluggish growth its US restaurants.
The company pointed to especially strong sales in Britain and Japan, as well as positive results in Australia, Canada and Germany.Net income for the third quarter dipped 4.4 percent to $1.3 billion. That translated into $1.50 a share, a penny above analyst expectations.
Net sales declined 3 percent to $6.42 billion, better than the $6.28 billion projected by analysts.