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Trending: McDonalds serves up UK tax status

Last updated: 20:33 08 Dec 2016 GMT, First published: 15:33 08 Dec 2016 GMT

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At a time when corporate Britain fears an exit by the banks to Frankfurt or Switzerland, a major US brand has just decided to do the very opposite.

Fast food restaurant chain McDonald's (NYSE:MCD) has decided to move its tax status in Europe from one of the founding fathers of the Treaty of Rome, Luxembourg, to the UK.

It comes as a shot in the arm for the British government, left trying to justify its methods for triggering Article 50 by March 2017 and beginning a two-year window to negotiate terms for the exit of the UK from the European Union.

Britain certainly needs corporate pals and headlines like the one provided by McDonalds on Thursday.

But whether or not the decision is replicated by other north American multi-nationals or indeed by European companies, remains to be seen. If it is a bet on the performance of the UK economy post-Brexit, then McDonalds will not be the last company opting to dock in the UK rather than mainland Europe.

But there are some rather peculiar factors at stake in the case of McDonalds.

Firstly, a tax investigation McDonalds is facing in Luxembourg may have been one way in which the company has demonstrated a rebuke.

Secondly, the worldwide crackdown on the movement of profits between different tax jurisdictions to minimise payments are likely to have been another.

Thirdly, although perhaps the weakest reason of all, is the fact that McDonald's already has a significant business in the UK.

Far more convincing could be a fourth reason, that having a European hub in a country which speaks the same language as the parent company makes sense and speeds up decision-making for the region as it liaises with head office.

Certainly, the company gave a very clear explanation on those lines anyway. It was because of the "significant number of staff based in London working on our international business, language, and connections to other markets".

McDonalds has always been good at public relations and at making its feelings felt. The Grand Duchy of Luxembourg has orchestrated EU probes into potential "sweetheart deals" struck with multi-nationals which saw major corporates pay far less than the headline rate of corporate tax in Luxembourg of 20%. At stake, or is that steak, is a possible alleged fiscal loss in the EU of 1bn euros.

US-Italian carmaker Fiat Chrysler Automobiles (NYSE:FCAU) and Amazon.com (NASDAQ:AMZN) both were already on the receiving end of EU investigations into their Luxembourg-based activities.

There are also two significant pieces of legislation on the near horizon which are focusing multi-nationals’ minds.

The first is a clampdown on Base Erosion and Profit Shifting or "BEPS" for short. It is a tax avoidance strategy where profits are artificially shifted within companies from jurisdictions that have high taxes to jurisdictions that have low or in some cases no taxes. It's designed to keep profits in the country where they were really generated.

The second is country-by-country reporting. This will force companies to list all profits and taxes paid in every country in which the company has a presence. This will make it almost impossible for companies and countries to strike secret deals, as they will be visible to other governments who might scream blue murder.

The tax heat is being turned up all over Europe and McDonald's has decided to exit the tax regime before it is burned by tax authorities and public opinion.

But while McDonalds cannot truly avoid the Luxembourg judgement when it comes, it is most likely seeking to write-off its pickled situation in the Grand Duchy and like any dynamic business, looking beyond to what happens in the future.

The UK has one of the lowest corporate tax rates of any major economy. At 20% (compared with 35% in the US and 33% in France) it is due to fall to 17% by 2020. Not a bad magnet, except that the Republic of Ireland betters that with a rate it fought hard to uphold when Germany and France protested six years ago, of only 12.5%.

But McDonalds is trying to learn from others’ mistakes. After the furore over Apple's (NASDAQ:AAPL) deal which led it to pay lower taxes on international profits and the move by the EU to force Ireland to collect €13bn in back taxes - currently under appeal - anything for a quiet life.

If that wasn't incentive enough, the UK has another attraction: it doesn't tax dividends paid out to foreign companies or individuals.

McDonalds shares were up 0.8% at $120.82 on Thursday.

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