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McDonald’s Moves Non-US Tax HQ From Luxembourg To UK

Tax Experts Say The Move Is Down To Reduced Tax Rate And Brexit

09.12.2016

Tax experts at law firm Irwin Mitchell say the reduced UK tax rate will encourage further investment after McDonald’s plans to move fiscal headquarters for the majority of its non-US operations to Britain.

McDonald’s is going to shift its tax base from Luxembourg to establish a new base in Britain to cover most licensing agreements outside the United States. 

The news follows an EU crackdown on tax deals struck by multinational companies. 

The profits made by McDonald’s will be subject to British tax which has been welcomed by the British government, which is under pressure to preserve economic stability as it prepares to leave the European Union.

Prime Minister Theresa May has pledged to cut corporation tax from 20 per cent to 17 per cent by 2020. 

Andrew Watters, Partner, who leads the Tax Risk Reputation Resolution team at Irwin Mitchell, said:

Expert Opinion
“The move of McDonald’s fiscal HQ to the UK from Luxembourg does not mean we should expect lots more McDonald restaurants on Britain’s high streets.

“One driver for the move will have been the planned reduction in the UK corporate tax rate. This was the intention to encourage investment into the UK by companies from around the world making Britain a business friendly tax environment, and we should be seeing more companies making a similar move to McDonalds.

“Another motive is likely to have been linked to Brexit. The EU has been investigating various tax agreements between major international companies and national governments of European countries.

“These occur when a company approaches the relevant government and explains how it proposes to treat its international tax affairs and, in particular, what amount of income is going to end up as taxable profit in the country concerned.

“This will often involve some element of what are called “transfer pricing” principles - that is whether the shifting of monies between group companies in different countries for the provision of goods or services does or does not meet the country’s tax regulations. The advantage of this up-front agreement to the company is that it provides certainty.

“However, in some recent instances the EU has ruled that that these agreements breached state aid rules. In McDonald’s case, a previous agreement with the Luxembourg authorities on the treatment of royalties was challenged by the EU.

“The legal conundrum is that it may be possible for arrangements to be within a government’s national tax legislation but deemed to be in breach of state aid rules.

“It may be that McDonalds hopes that the UK’s distancing itself from EU rules means that more reliance can be placed on assurances from the UK government.”
Andrew Watters, Partner