McDonald's will pay more than 250 million Big Macs to the government. Liberation reports that McDonald's, the world's largest fast food company, has agreed to pay a fine to France of 1.245 billion Euros to prevent criminal prosecution for tax evasion. Courts have confirmed the agreement between the American company and the National Financial Prosecutor's Office. This sanction is not trivial, as we explain.
As everywhere else in the world, the McDonald's franchisees manage the McDonald's brand in France. France is the second largest market for McDonald's in the world, with nearly 1,500 points. This is where the franchisees pay a portion of their turnover to McDonald's France, in the form royalties. These royalties are then transferred to the Netherlands, Luxembourg, and other tax havens. This is known as "transfer pricing".
Nothing has been found to be illegal so far. This is except for the possibility that McDonald's used this method to avoid paying too much tax in France (33% vs 2% in Luxembourg). The European Union approved the favorable tax treatment that Luxembourg granted McDonald's in September 2018. This was a significant victory for McDonald's and other American giants like Apple who are now liable to pay back unpaid taxes.
The French tax administration, which has been following McDonald's since 2014, didn't see things the same. It concluded that the amount of royalties the company paid to franchisees was deliberately high to avoid French tax. This was the result of a preliminary investigation which began in 2016. To avoid a lengthy trial that could damage its reputation, the company agreed not to undergo a Judicial Convention of Public Interest. This is a similar procedure to a "guilty plea".
McDonald's dubious practices not only cost the French state money, and fortiori the taxpayers, but also resulted in the firm's employees being punished. The McDonald's Ouest Parisian workers council filed a complaint in 2016 for "laundering tax evasion within an organized gang". This was later joined by the French tax services, according to UFC-Que Choisir. Gilles Bombard (secretary of the works council) explains in Liberation how the tax evasion by McDonald's deprived employees of this subsidiary of a 13th month and a profit-sharing bonus because accounts were artificially negative.
After the CGT McDonald's Paris-de-France announced a fine of 1.245 million euros against McDonald's, the CGT McDonald's Paris-de-France said it was a "historic win". However, it reminded that employees were "doubly victim" of the system. "As workers we cannot reap the benefits of our labor. As citizens, we pay the tax McDonald's doesn't pay.
The two plaintiffs' attorneys - Eva Joly (the former presidential candidate and anticorruption magistrate) as well as Caroline Joly, said that the injured employees could "within the framework" of civil courts to seek compensation for their injuries. They hope that the "deterrent” fine will make it harder for large groups to use transfer pricing. Liberation reports that McDonald's France has committed to lowering the royalty rate collected from franchisees.
According to our colleagues, McDonald's still has ten days to pay the public treasury 1.245 billion euros. What will the French state do with this check? It is a record in the Cjip framework.
One thing is certain: Bercy will not eat this amount at a time where public spending is on the rise and inflation is forcing the government to grab the money again.
