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McDonald's Australia accused of tax avoidance: report

Xinhua, May 20, 2015 Adjust font size:

International fast-food giant McDonald's has been accused of avoiding almost 500 million Australian dollars (395.4 million U.S. dollars) in corporate tax by shifting profits from Australia to Singapore, Fairfax Media reported on Wednesday.

A report, funded by a coalition of global trade unions, does not allege illegal behavior, but after analyzing McDonald's Australia's financial accounts, shows it has been taking advantage of current international loopholes that allow companies to pay low tax rates on royalty income.

"McDonald's uses royalty payments from franchises and foreign subsidiaries in major markets to route profits to tax havens," the report said according to Fairfax Media. "These strategies may have allowed it to avoid up to 1.8 billion U.S. dollars in tax in those markets in the years between 2009 and 2013, including 1 billion euros across Europe and 497 million Australian dollars (393.03 million U.S. dollars) in Australia."

According to the report, McDonald's Australian operations show an "unusually high level of inter-company payments over the five years."

Globally, McDonald's charges an effective rate of 5 percent of sales via royalty payments of its franchising model, however the report said McDonald's Australia reported paying 376.6 million Australian dollars (297.9 million U.S. dollars) in "service fees," or 9 percent of sales, to McDonald's Asia-Pacific.

"In fact in each of the past five years, McDonald's Australia Ltd has reported nearly twice as much in outgoing service fee payments as would be explained by the royalties the company receives from franchisees plus any royalty paid on behalf of corporate stores," the report said. "It is appropriate to question whether these fees may not be based on appropriate 'arms length' conditions and breached Australia's anti-avoidance laws."

Australia's government recently has been trying to combat tax avoidance by multinationals who operate in Australia. In the federal budget, Treasurer Joe Hockey said he would strengthen Australian law to target 30 companies, with more than 1 billion Australian dollars (791 million U.S. dollars) in annual turnover, which include Google, Apple, Microsoft and News Corp.

"These companies are diverting profit earnings in Australia away from Australia to no-tax or low-tax jurisdictions," Hockey said. Endi