McDonald’s sending profits to Singapore to dodge $497 million in tax, according to report

MCDONALD’S has been accused of using “aggressive and potentially abusive strategies” to rip off Australia by nearly half a billion dollars.

MCDONALD’S has been accused of using “aggressive and potentially abusive strategies” to minimise its global tax bill, with Australian payments being cut by nearly half a billion dollars.

The claims come in a new report, Golden Dodges: How McDonald’s Avoids Paying it Fair Share of Tax, commissioned by a group of international trade unions.

According to the report, McDonald’s uses its franchising model to generate most of its revenue through royalty payments which are then siphoned off into offshore tax subsidiaries, the majority of which it does not disclose in its annual reports.

McDonald’s Australia allegedly shifts its profits to a subsidiary in Singapore to reduce its Australian tax bill. The report says McDonald’s Australian operations show an unusually high level of intercompany payments between 2009 and 2013.

The amounts paid are “significantly larger” than would be expected if the standard five per cent royalty rate were levied on all stores, it alleges. The authors calculate the tax owed by McDonald’s on all the service fees paid offshore during that period could be as high as $497.1 million.

“Companies that rely on income from intellectual property are increasingly using international tax loopholes and mismatched tax regimes to significantly lower their taxes around the world,” the report says.

“Royalty payments are one common device used by transnational corporations to limit tax obligations. Typically, subsidiaries operating in high-tax jurisdictions make royalty payments to intellectual property holding companies in low-tax jurisdictions.”

Those royalties are treated as tax deductible expenses in the operating country, reducing the company’s taxable income there, the report says.

They allege that McDonald’s “operates an extensive network of subsidiaries in tax havens, the majority of which it does not disclose, and is not required to disclose under SEC rules, in its annual report”.

In 2014, McDonald’s disclosed 11 subsidiaries in countries that are known tax havens, but a country-by-country search of corporate registers shows that the company has at least 42 subsidiaries and branches in tax haven countries.

The authors claim McDonald’s has used tax loopholes to avoid paying $2.27 billion ($US1.8 billion) in tax between 2009 and 2013, including $1.41 billion (1 billion euros) in Europe and $497 million in Australia.

“There is no excuse for governments to cut public services like health and education when they let companies like McDonald’s shift billions of dollars in taxes offshore,” Public Service International general secretary Rosa Pavanelli said in a statement.

“With inequality rising, working people will no longer accept cuts to services when politicians allow scandalous levels of tax avoidance by the wealthiest on the planet.”

IUF general secretary Ron Oswald said “everyone benefits” when companies pay tax where they make the profits. “Companies such as McDonald’s are mocking their workforce when they argue low wages are needed to be competitive, but cream off billions in profits in tax havens,” he said.

McDonald’s Australia spokesman Chris Grant 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.”

In last week’s budget, the government outlined a new multinational tax avoidance law which will target “approximately 30 large multinational companies” that are suspected of “diverting profits using artificial structures to avoid a taxable presence in Australia”.

The report notes that over the past 10 years, McDonald’s has faced scrutiny from tax authorities in a number of countries. In 2013, the ATO investigated McDonald’s and its franchisees regarding the tax treatment of the sale of franchises.