How McDonald’s dodged half a billion dollars in Australian tax

Sedney : International fast-food giant McDonald’s avoided paying half a billion dollars of tax in Australia over five-year period by shifting profits through the low-tax nation of Singapore, a new report by a global coalition of trade unions says.The report, which has been funded and commissioned by a coalition of global trade unions including the Public Services International (PSI) – of which the Community and Public Sector Union is a member – the International Union of Foodworkers (IUF) and the Service Employees International Union (SEIU) – looks at how McDonald’s has used “aggressive” tax strategies to avoid billions of dollars in taxes every year.The report, Golden Dodges: How McDonald’s Avoids Paying Its Fair Share of Tax, does not allege illegal behaviour by the company, which is among several multinationals that have been taking advantage of loopholes in current laws.It analysed McDonald’s financial accounts and said the company was “well-positioned to take advantage of the international loopholes and mismatched tax regimes that allow companies to pay very low tax rates on royalty income”.”McDonald’s uses royalty payments from franchisees and foreign subsidiaries in major markets to route profits to tax havens,” the report states. “These strategies may have allowed it to avoid up to $US1.8 billion in tax in those markets in the years between 2009 and 2013, including €1 billion across Europe and $A497 million in Australia.” A spokeswoman for McDonald’s said: “We have always been committed to paying our fair share of tax in Australia. In fact, over the past five years, McDonald’s Australia has paid in excess of $500 million in tax.” But the report suggests the company’s Australian operations show an “unusually high level of inter-company payments over the five years” had gone to the low-tax nation of Singapore. “These payments may shift profits out of Australia to a subsidiary in Singapore, thereby reducing McDonald’s tax bill significantly,” the report said.In Australia, where McDonald’s has 943 stores and employs 90,000 workers, the report said 80 per cent of these stores were operated by franchisees.In 2013 McDonald’s Australia reported that it earned $A154.5 million in service fees from franchisees.That same year, the Australian Tax Office investigated McDonald’s and its franchisees regarding the tax treatment of the sale of franchises. The report said that McDonald’s charges its Australian subsidiary a royalty of above five per cent of sales from its own corporate stores.
The five per cent rate is McDonald’s standard royalty payment globally. But the report said McDonald’s Australia reported paying service fees of $A376.6 million to McDonald’s Asia-Pacific in 2013, which is equivalent to more than nine per cent of “system-wide sales”. “In fact in each of the past five years, McDonald’s Australia Ltd has reported nearly twice as much in outgoing service fee payments as would be explained by the royalties the company receives from franchisees plus any royalty paid on behalf of corporate stores.”