McDonald’s has agreed to pay €1.25bn to settle a dispute with French authorities over excessive royalty payments to Luxembourg

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On 16 June 2022 McDonald’s France entered into an settlement agreement according to which it will pay €1.245 billion in back taxes and fines to the French tax authorities.

The settlement agreement resulted from investigations carried out by the French tax authorities in regards to abnormally high royalties transferred from McDonald’s France to McDonald’s Luxembourg following an intra group restructuring in 2009. McDonald’s France doubled its royalty payments from 5% to 10% of restaurant turnover, and instead of paying these royalties to McDonald’s HQ in the United States, going forward they paid them to a Swiss PE of a group company in Luxembourg, which was not taxable of the amounts.

During the investigations it was discovered that McDonald’s royalty fees could vary substantially from one McDonald’s branch to the next without any justification other than tax savings for the group. This conclusion was further supported by statements of the managers of the various subsidiaries as well as documentation seized which showed that the 100% increase in the royalty rate was mainly explained by a higher profitability of McDonald’s in France and a corresponding increase in taxes due.

The investigations led the French tax authorities to question the overall economic substance of the IP company in Luxembourg and the contractual arrangements setup by the McDonald’s group.

After being presented with the findings of the investigations and charged with tax fraud etc. McDonald’s was offered a public interest settlement agreement (CJIP) under Article 41-1-2 of the French Code of Criminal Procedure. The final settlement agreement between McDonald’s and the French authorities was announced in a press release from the Financial Public Prosecutor (English translation below).

On 16 June 2022, the President of the Paris Judicial Court validated the judicial public interest agreement (CJIP) concluded on 31 May 2022 by the Financial Public Prosecutor (PRF) and the companies MC DONALD’S FRANCE, MC DONALD’S SYSTEM OF FRANCE LLC and MCD LUXEMBOURG REAL ESTATE S.A.R.L pursuant to Article 41-1-2 of the Criminal Procedure Code. under Article 41-1-2 of the Code of Criminal Procedure.

Under the terms of the CJIP, MC DONALD’S FRANCE, MC DONALD’S SYSTEM OF FRANCE LLC and MCD LUXEMBOURG REAL ESTATE S.A.R.L, undertake to pay the French Treasury a public interest fine totalling 508,482,964 euros.

Several French companies of the MC DONALD’S group have also signed a global settlement with the tax authorities, putting an end to the administrative litigation. The sum of the duties and penalties due under the overall settlement and the public interest fine provided for under the CJIP amounts to a total of EUR 1,245,624,269.

Subject to the payment of the public interest fine, the validation of the CJIP extinguishes the public prosecution against the signatory companies.

This agreement follows a preliminary investigation initiated by the PNF on 4 January 2016 after the filing of a complaint by the works council of MC DONALD’S OUEST PARISIEN.

Opened in particular on the charge of tax fraud, the investigation had been entrusted to the Central Office for Combating Corruption and Financial and Fiscal Offences (OCLCIFF).

This is the 10ᵉ CJIP signed by the national financial prosecutor’s office.

The Financial Public Prosecutor Jean-François Bohnert

 
 
Validated Settlement Agreement of 16 June 2022

English translation of the Validated Settelment Agreement

France vs MCD Ordonnance_validation_CJIP_tjparis_macdo_20220616

 
 
Preliminary Settlement Agreement of 31 May 2022 with statement of facts and resulting taxes and fines

English translation of the Preliminary Settlement Agreement of 31 May 2022

MCD vs France CJIP_TJ_paris_macdo_20220531

TP-Guidelines

2 comments on McDonald’s has agreed to pay €1.25bn to settle a dispute with French authorities over excessive royalty payments to Luxembourg

  1. Hello, can I share with you some tp cases of my country (Peru)? I found the Peru file without any =D. I’m glad to colaborate! Regards!

  2. That would be much appreciated – thanks!
    8 TP cases from Peru should already be available on the site:
    Peru vs. “Mining Corp”, December 2021, Tax Court, Case No 11557-1-2021
    Peru vs. Perupetro, June 2021, Tax Court, Case No 05562-1-2021
    Peru vs. Telefonica, February 2021, Supreme Court, Case No 210/2021
    Peru vs Colegio de Abogados de La Libertad, September 2020, Constitutional Court, Case No 556/2020
    Peru vs. “TELE SA”, July 2020, Tax Court, Case No 03306-9-2020
    Peru vs. “P Services”, July 2020, Tax Court, Case No 03052-5-2020
    Peru vs. Telefonica, July 2019, Supreme Court, Case No 11111-2016, Lima
    Peru vs “Copper Corporation S.A.”, July 2011, Tax Tribunal, Case No 12609-8-2011

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