UK and International Tax news
McDonald’s To Pay €1.25bn In French Tax Settlement
Thursday 23rd June 2022
McDonald’s France has agreed to pay €1.25 bn in back taxes and fines to the French tax authorities.
The settlement agreement resulted from investigations carried out by the French tax authorities with regard to abnormally high royalties transferred from McDonald’s France to McDonald’s Luxembourg following an intra group restructuring in 2009. McDonald’s France doubled its royalty payments from 5% to 10% of restaurant turnover and, instead of paying these royalties to McDonald’s HQ in the US, paid them to a Swiss PE of a group company in Luxembourg, which was not taxable of the receipts.
During the investigations, it was discovered that McDonald’s royalty fees appeared to vary substantially from one McDonald’s branch to the next without any justification other than tax savings for the group. This conclusion was further supported by statements of the managers of the various subsidiaries as well as documentation seized which showed that the 100% increase in the royalty rate was mainly explained by a higher profitability of McDonald’s in France and a corresponding increase in taxes due.
The investigations led the French tax authorities to question the overall economic substance of the IP company in Luxembourg and the contractual arrangements setup by the McDonald’s group.
After being presented with the findings of the investigations and charged with tax fraud, McDonald’s was offered a public interest settlement agreement (CJIP) under Article 41-1-2 of the French Code of Criminal Procedure. The final settlement agreement between McDonald’s and the French authorities was announced in a press release from the Financial Public Prosecutor. Subject to the payment of the public interest fine, the validation of the CJIP extinguishes the public prosecution against the signatory companies.
This agreement follows a preliminary investigation initiated by the PNF on 4 January 2016 after the filing of a complaint by the works council of McDonalds Paris. The investigation had been entrusted to the Central Office for Combating Corruption and Financial and Fiscal Offences (OCLCIFF).
This is the 10th CJIP signed by the national financial prosecutor’s office.
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