The world’s largest fast-food chain McDonald’s is moving its non-US tax base from Luxembourg to the UK. A brand-new UK-based holding company will be responsible for most of the royalties from licensing its intellectual property rights outside of the US, which includes across Great Britain and much of Europe. McDonald’s claims it has chosen to move its tax base to the UK for efficiency reasons. However, there are various other reasons behind this change.
European Tax Avoidance Crackdown
There has been a big crackdown on tax avoidance by big business in the past few months, as many revelations have emerged. In Luxembourg two tax rulings from back in 2009 claimed that McDonald’s had paid zero corporation tax, despite being based in and making huge profits (over €250m/£210m in 2013) in the country.
With a new investigation into Luxembourg’s tax deals with McDonald’s underway by the European Commission, the move is seen by many as a way to minimise their European tax bills. This follows on from other big corporations including Amazon, Starbuck and Facebook all doing the same as a crackdown on tax avoidance by such large businesses continues.
Increasing Operations Efficiency
An office will remain in Luxembourg that is responsible for restaurant operations in the country but everything else will transfer over to London. The company itself has claimed this is part of a new structure to reduce expenses and increase flexibility so that their corporate structure matches a new functional one.
In many ways, it does make business sense, with a huge number of McDonald’s staff already based and working in London. As a city and nation with a much higher population and network of McDonald’s restaurants than Luxembourg, and with international business, language and closer connections to other markets, it should improve their performance.
One of the reasons McDonald’s presumably chose the UK for its new base is the further opportunities it will provide. The UK currently has a corporate tax rate of 20% which it is looking to cut to 17% by 2020. This offers further cost-cutting opportunities for the huge business.
The UK also is home to a big pool of potential employees, from young people looking to start a career in a restaurant, to highly-skilled managers. Even though there is the ongoing uncertainty presented by Brexit, this doesn’t seem to have fazed the American firm, with it spotting enough opportunities to take the risk in moving its non-US tax base.
Benefits For The UK
The move will also greatly benefit the UK, as it is likely to generate hundreds of millions of extra tax revenue for the country. This will provide a good boost to the economy, helping anyone with savings at Secure Trust Bank and other investments.
It will also create more jobs and attract talent to the capital, which should be a good thing for the UK. So, even though there are strong suspicions that McDonald’s has moved its non-US tax base to the UK for tax purposes, the nations itself won’t be too bothered if it benefits from such a change.