Royalty payments are almost always scrutinized by tax authorities, as they’re viewed as an easy way to shift profits outside of a rightful jurisdiction to a low-tax country. Not long ago, Coca-Cola got into tax trouble with the IRS for transfer pricing over intangible assets, and now McDonald’s is in costly hot water with France over royalty income shifted outside of its borders between 2009 and 2020.
France is one of McDonald’s largest markets outside the US, and McDonald’s was under investigation for transferring royalty payments from France to cross-border entities in low-tax jurisdictions.
McDonalds claims it has paid France more than €2.2 billion
The initial investigation began in 2016 and—how’s this for serious—included a police raid at the French headquarters. McDonalds claims it has paid France more than €2.2 billion in corporate income tax in France and created about 25,000 jobs during the 11 years under investigation.
And while the company hasn’t acknowledged guilt, it has agreed to pay a fine of €508 million and €609 million in back taxes and penalties. According to the Financial Times, that’s the highest amount claimed by the French Public Legal Interest Convention, which allows companies to settle tax probes through fines.
As for France, the country is clear about its no-tolerance stance when it comes to profit shifting, and McDonald’s isn’t the first to feel its wrath: In 2019, Google settled a tax dispute for €1 billion, Amazon for an undisclosed amount in 2018, and Airbus for €2.1 billion in 2020. Take the hint.