When a company is growing into international markets, it's a sign of success. At the same time, however, businesses must work within a patchwork of laws when expanding business operations into a new country. Of course, this also means companies must take steps to adapt to differences in tax liabilities between nations.
McDonald's was just the most recent in a string of well-known companies to be accused of tax avoidance by the French government. Right behind the United States, France is McDonald's second-largest market, so the European nation certainly had an interest in dishing out tax scrutiny.
French officials have accused McDonald's of hiding more than $3 billion worth of income to avoid facing corporate taxes. Tax officials say that McDonald's has established entities in foreign countries to evade French rates, which is a similar claim launched against a number of other companies.
In response to the charges, McDonald's has denied that they've violated the law. According to a statement from the company, they have paid almost $1.37 billion in taxes to the French government since 2009.
Despite the company's response and insistence that they've followed the law, there's a good chance French officials will be digging deeper, perhaps through an audit and additional legal action. As such, this is something that the company will have to brace for.
According to a report from Forbes, the restaurant's franchising structure is likely to be a target of tax officials’ investigations. Much like many McDonald’s restaurants in the United States, most of the fast-food locations in France are franchises. As such, franchisees the necessary fees to a company based outside of the country.
Although most businesses aren't as large as McDonald's, business owners also face tax challenges. For a small business owner, it can be difficult juggling differences between Minnesota's tax laws and that of other states, in addition to the complexities of the federal tax code. As such, there's a chance that officials will take steps to conduct a tax audit, which should be addressed quickly and effectively.
Source: Forbes, "Do You Want Fries With That Audit? McDonald's Faces Allegations Of Tax Evasion In France," Kelly Phillips Erb," Jan. 23, 2014