Is McDonald’s New Zealand a tax cheat?

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joker-2mac

It looks like McDonald’s NZ has been using accounting tricks to avoid paying tax in New Zealand.
In 2011 there was a special payment of $154 million that was paid for by borrowing the money from the Bank Mendes Gans NV, which manages a lot of the company’s international finance. The total loan was actually for $278m to both pay the dividend to the US and repay a “loan” from McDonald’s Australia of $123.567m.

The dividend payment more than doubles McDonald’s NZ liabilities to $301.9m and “will similarly boost its tax deductible interest expense in coming years.

In the last three years McDonald’s NZ has averaged around $200 million a year income. This is income from the 30 stores it owns directly and the fees from the 131 stores owned by franchisees.

The before tax profit declared for the 3 years was $146.562m. Tax paid was $46.95m – which would seem to be the correct company tax rate. The problem is that a huge amount of revenue is excluded from the profit by accounting mechanisms.

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The most important is payment for trademarks etc. This equals $51.247m – more than the tax paid. The fees equal 8.5% of income which is significantly more that the 4-5% paid as trademark fees in the UK. In addition there was the $10.9m in accountancy fees and the over $20m in finance costs to related companies they had borrowed from.

Internationally McDonald’s has been accused of tax avoidance in Europe and other countries. In the UK the company claims not to have made a profit for the last 10 years. They relocated their European headquarters to Switzerland in 2009 because of what a McDonald’s spokesperson called Geneva’s “business friendly environment.”

The principal way multinationals avoid tax is by paying substantial royalties for use of the brand name to parent entities located in tax havens. A report last year calculated that “The companies’ tax rates differed: Starbucks paid 31 percent in the U.S. but just 13 percent overseas; Burger King also paid 13 percent on overseas income, while McDonalds paid 20 percent.”

Tax experts say the use of intellectual property or royalty fees has existed for decades “but spread after a US loophole opened up in the 1990s. The fees first appeared in McDonald’s UK accounts in 2007. The UK unit paid in 2011 paid 62 million pounds, 4-5% of its turnover, in such fees.

McDonald’s overseas subsidiaries generate over $US17 billion a year in revenues. In Europe the fees are paid to their Swiss office where the effective tax rate is 2-12%.

By using “loans” that are ultimately from themselves, as well as paying exorbitant trademark fees for the intellectual property of making a hamburger McDonald’s is transferring income made in New Zealand to their US masters without paying tax on it here . If it is legal it should be outlawed. If its not legal they should be prosecuted.

McDonald’s NZ Accounts 2010-12.
2010: Revenue was $197.6m. Declared before tax profit was $53.367m. Tax paid was $17.483m Net profit was $35.884m. Trademark fees paid to McDonald’s Asia Pacific LLC of $16.386m. $4.643m in interest on McDonald’s Australia loan. Accounting fees to McDonald’s Australia of $3.148m

2011: Revenue was $199.213m. Profit before tax was $47.683m. Tax paid $15.838m. Net profit $31.845m. Interest bearing loans and borrowings $278m. Dividend paid $154m. Repaid loan from Australia $119m. Interest on McD’s Australia loan $7.163m. Trademark fees paid to McDonald’s Asia Pacific LLC $17.372m. Accounting fees to McD’s Australia $3.3.206m.

2012: Revenue was $204.743m. Before tax profit $45.512m Income tax paid $13.629m. Net profit (“attributable to members of the parent”) $31.883m. Interest bearing debt reduced from $278m to $265.86m. Trademark fees $17.489m. Accounting Service fees to McDonald’s Australia of $1.386m. Finance costs $8.442m.

5 COMMENTS

  1. We need a system where large corporations pay a minimum tax rate based on revenue and reasonable profit margins for their sector.

    For a franchise operation like McDs (Restaurant Brands do the actual cow-burger-fat person thing and the $200m is presumably their fee) you’d expect a margin around 90% – they should be paying the dividend to the US *after* tax.

    • (Restaurant Brands do the actual cow-burger-fat person thing and the $200m is presumably their fee)

      Um, what? McDonald’s is owned by McDonald’s.

  2. Let me get this straight

    Low wages
    Poor food
    massive advertisements
    and little taxes

    They are the american dream right?

  3. Come on Mike, you would not think so bad of the owners of the Ronald McDonald and other associated brands and products?

    They are perhaps more like a “charitable” organisation, like Sanitarium, or that special charitable organisation behind that “brand”?

    Caring for the needy, the hungry and destitute, to offer food, a warm air ventilation system, pumping excess warm air through shafts out to the street, so the homeless have a cosy spot to spend the night in, they are really good people, that are behind McDonald’s, I presume.

    They also offer so great careers, and great pay, some become managers of the rest, and they do rather well, same as some smart shareholders.

    No, do not throw dust into our eyes, do not cast doubt into our absolute faith, that this is perhaps not a pure, clean, totally honest, ethical and above all deservedly successful enterprise, they would surely never think of committing any sin like avoiding taxes.

    Even thinking of this is absolutely inexcusable, do not bite the hand that feeds you, or your members, perhaps, they are glorious and honest throughout.

    Now where are we at with the industrial action and negotiations, are they going to pay 15 dollars an hour for all workers to start with?

    I would really like to know.

    I bow in total respect and obedience to the master of greatest food cookery on this planet, dear McDonald’s. Feed a poor soul a day and all your sins will be forgiven, even tax evasion or avoidance.

    Hail thee, three hail Marys and what else you need.

    Ronald, I am fully loyal, until the end!

  4. The principal way multinationals avoid tax is by paying substantial royalties for use of the brand name to parent entities located in tax havens.

    This deduction of overseas expenses from tax shouldn’t happen. Here’s why:

    When a business in NZ pays another business for services and claims a tax deduction the government still receives the tax this is because the second business will pay tax on their income. Now, when the expense claimed is an overseas business the government doesn’t get that tax – especially if it happens to be one of the many tax havens in the world – and so it is an actual loss to the government.

    Now, I’m in favour of dropping all tax deductions because they set up loopholes that those with the wherewithal can use to avoid tax but if we’re going to have them then we need to plug the holes as best we can. Making it so that overseas expenses are no longer tax deductible is one which needs to be closed.

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