On 16 June 2022, the president of the Paris Judicial Court, Stéphane Noël, approved a judicial public interest agreement (CJIP) signed on 31 May between the National Financial Prosecutor's Office and three entities of the McDonald's group: McDonald's France, McDonald's System of France LLC and MCD Luxembourg Real Estate.
The amounts
| Item | Amount |
|---|---|
| Public interest fine | 508 482 964 € |
| Tax component (reassessments, duties and penalties) | see below |
| Total | 1 245 624 269 € |
Public sources differ on the details of the tax component. The press release of the Directorate General of Public Finances of 16 June 2022 refers to “corporation tax reassessments (duties and penalties) amounting to 609 million euros”; AFP, picked up by several media outlets, gives 737 million euros paid to the tax authorities. The total of 1.245 billion, for its part, appears in the agreement. We do not resolve this discrepancy.
What was alleged
The proceedings concerned the financial years 2009 to 2020. In 2009, the group restructured its European organisation: rights attached to the brand were placed in Luxembourg, and the rate of the fee paid by French restaurants rose, according to public information, from 5% to 10% of turnover. The suspicion, characterised in criminal law as tax fraud, was of an understatement of the corporation tax due in France through a transfer of profits to a lower-tax jurisdiction.
The preliminary investigation was opened by the National Financial Prosecutor's Office on 4 January 2016, following a complaint by the works council of McDonald's Ouest Parisien. It followed a report published in February 2015 by a coalition of European and American trade unions, “Unhappy Meal”, which alleged more than one billion euros of tax avoided in Europe between 2009 and 2013. These were union allegations, not judicial findings.
What the CJIP is - and is not
The judicial public interest agreement, created by the Sapin II law of 2016 and extended to tax fraud in 2018, ends the prosecution without any admission of guilt and without criminal conviction. There is no trial and no entry on the criminal record. McDonald's welcomed the end of the dispute without any admission of wrongdoing. The mechanism is the subject of recurring public debate - some commentators see it as efficient negotiated justice, others as two-tier justice. This site takes no position.
To be distinguished from a related case often confused with this one: on 19 September 2018, the European Commission concluded that the tax treatment granted by Luxembourg to McDonald's did not constitute illegal State aid.
The echo in the case file
The question of how fees circulate between the group's entities is not new in the Antibes case file. Bernard Collorafi addresses it in his 2002 notes on the group's structure and its property subsidiary, and in 2000 he had written to Members of the European Parliament as well as to French parliamentarians, about the bill on new economic regulations, the text of which is also in the case file under the heading References and legal commentary. These letters are those of a party to the lawsuit; they express his point of view, not an established fact.
The mechanism, in brief
What the tax authorities were challenging has a technical name: transfer pricing. These are the prices that companies in the same group charge each other - here, the brand and know-how fee that French restaurants paid to a group entity based in Luxembourg. Such flows are perfectly lawful in principle: a franchise agreement has to be paid for. But their rate is set within the group, without genuine negotiation, and raising it shifts taxable profit from one country to another.
The applicable rule is the arm's length principle: the price charged between related companies must be the one that independent businesses would have agreed. This is what the DGFiP challenged, before the criminal side was settled by the agreement.