McDonald's to dismantle Luxembourg tax structure

McDonald's is set to scrap its controversial Luxembourg tax structure in a corporate shakeup that would see $1 billion of income from fast-food restaurants across Europe flow through the UK instead.

The move comes a year after Brussels competition officials announced a state aid inquiry into the fast-food chain's arrangements in Luxembourg, which had funnelled franchise and royalty fees from across Europe in the past seven years. 
McDonald's said in a statement, ''The change will result in the creation of a unified structure located in the UK with responsibility for the majority of royalties received ... outside the US.''

The revamp comes as EC investigators continue to probe the group's alleged sweetheart deal with the Grand Duchy's tax office in 2009. They were also investigating whether the deal amounted to illegal state aid, generating huge tax savings for the US group.

Though both, the US company and Luxembourg had denied suggestions of the restaurant group receiving special treatment, the US multinational had decided to dismantle its Luxembourg tax structure.

The controversy involved a Luxembourg subsidiary called McDonald's Europe Franchising Sarl (MEF), which, since 2009, had become group's lucrative royalties-earning business in Europe. 

McDonald's will establish a new UK-based holding company to cover royalties from most licensing agreements outside the US, as it shifts its tax base from Luxembourg.

The profits will be subjected to British tax, McDonald's said in a statement. The move had not been welcomed by the UK government, which was under pressure to preserve economic stability as the country prepared to leave the EU.

Prime Minister Theresa May had pledged to cut corporation tax to 17 per cent by 2020 from the current 20 per cent, which led commentators to say that the UK was planning to become a "tax haven" post-Brexit.