McDonald’s Transfers Tax Residency to the United Kingdom
December 19, 2016
Recently it has been announced that American fast food giant McDonald’s transfers its tax residency toward the United Kingdom.
Along with this, the executives of McDonald’s were not confused by the results of the referendum on the exit of the United Kingdom from the European Union structure. Officially, the company says there were compelling reasons for transferring corporate structure to the UK before Brexit and these reasons remain in place today. Among them are a large number of employees in London office, no language barrier and communications with the largest world’s markets.
Currently McDonald’s is considered a tax resident in Luxembourg for income tax received outside the United States. Further McDonald’s is planning to create a new international holding structure with headquarters in the UK. Presumably, the company will receive a large portion of profits from intellectual property licensing forfranchise companies operating outside the United States.
Corporate tax rate in Luxembourg constitutes 20% of profits, as well as in the UK. Although earlier British officials confirmed the intention of the UK to reduce the corporate tax rate to 19% next year and bring it to 17% by 2020. Quite possibly the company decided to change its structure and “residenship” due to these circumstances. At the same time there is a strong possibility that migration process is connected with the criticism of company’s tax policy made by the European authorities.
Already known that the European Commission began a formal review by tax agreement between the US fast-food chain McDonald’s and Luxemburg state bodies. In turn, McDonald’s claims about paying more than $ 2.5 billion at an average rate of 27% for the benefit of the EU in 2011-2015.
It seems that the European Commission’s actions may actually jeopardize the “spirit of economic partnership” between United States and European Union. By the way, this is not the first time the European Commission demanded US corporations pay additional taxes backdated.
Most huge American corporations are engaged in structuring their business outside the USA. For instance, Starbucks, is a US multinational with activities in Europe, specifically the Netherlands. The other US multinational Apple has activities in Ireland. In September 2016 the European Union has demanded from Apple to pay 13 billion euros, as the European Commission has concluded that Ireland has provided the US company unwarranted tax breaks.
Since the UK exits from the EU, the European Commission will not be able to ignore tax laws of this country and turn upside down international taxation system, as in the recent case with Apple. And it is similar that McDonald’s is going to protect itself from unnecessary expenses for reimbursement to fun justified tax payments in future.