Mon dieu! Say it isn't so. Fast food giant McDonald's is denying allegations that it used a series of tax maneuvers to avoid paying its fair share of taxes in France. Earlier this week, the company confirmed that tax authorities had visited McDonald's French headquarters in Paris but insisted that it had not done anything wrong, saying, "McDonald's firmly denies the accusation made by L'Express according to which McDonald's supposedly hid part of its revenue from taxes in France."
The company is alleged to have shifted over €2.2 billion ($3.01 billion US) in income to companies set up in Switzerland and Luxembourg for the purpose of tax avoidance. If that sounds familiar, it is similar to the allegations made against fashion houses Prada and Dolce & Gabbana in Italy and a number of U.S. companies - like Apple - in countries around the world. And this isn't France's first bite at the tax apple either: it took a swipe at tech giant Apple in 2012 and has made similar accusations against Amazon, Google and Microsoft in recent years. These latest allegations by the French appear to be part of an overall push to crush tax evasion in the country which has a relatively high corporate tax rate (33.33%) compared to its EU neighbors, though still lower than U.S. corporate tax rates which can reach as high as 39%.
Those rates matter - especially when sales are in the billions. McDonald's is the largest hamburger chain in the world, serving up fast food to nearly 68 million customers per day. With an estimated $27.57 billion in annual sales, it ranks #6 on Forbes' List of Most Valuable Brands - coming in behind Apple, Microsoft, Coca-Cola, IBM and Google. It's notable as the only restaurant to crack the top 50 on the list.
McDonald's isn't just popular in the U.S. The French apparently really like their pommes frites: France is McDonald's second most popular market (after the U.S., of course). As in the U.S., most McDonald's restaurants in France are owned by franchisees. And that's where, it's alleged, McDonald's has carved out an opportunity to avoid, shield or evade (depending on who's doing the talking) a significant amount of tax since many French franchisees, by agreement, pay their fees directly to a Luxembourg based company.
While not elaborating, McDonald's has continued to maintain that it's done nothing wrong, claiming it has paid nearly €1 billion ($1.37 billion U.S.) in French corporate taxes since 2009.
So why all the scrutiny? Politics, for one. The President of France, François Hollande, was elected based largely on a platform of economic equality (equality being perhaps a bit relative). That included not only a promise to raise taxes on high wage earners (chasing stars like Gerard Depardieu out of the country) but also increased pressure on international companies to keep assets inside the country and not shift tax burdens elsewhere.
French Finance Minister Pierre Moscovici, who was instrumental in Hollande's election, advised that he couldn't speak directly about the McDonald's tax matter but managed to speak volumes nonetheless, telling Parliament:
You asked me a question on a taxation affair on which I can't speak because of the confidentiality rules in fiscal matters, but let me assure you that my ministry's staff is particularly watchful on all behavior by companies.
In other words, "we're digging as fast as we can."
France's L'Express which reported in an exclusive that the company was facing allegations of tax evasion isn't so sure that the investigation into the Golden Arches will stop with France. The paper hinted that perhaps Germany could be next, noting, "[u]n effet domino qui pourrait être désastreux" ("A domino effect could be disastrous").
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