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Sun 8th Oct 2017 - McDonald’s UK pays £132m ‘franchise rights’ to Luxembourg, reports turnover and profit boost
McDonald’s UK pays £132m ‘franchise rights’ to Luxembourg, reports turnover and profit boost: The British arm of McDonald’s paid £132m in “franchise rights” last year, under a controversial structure that allegedly limits its bill to the treasury. The payments are believed to go to the company’s Luxembourg operation, whose tax payments are currently under investigation by the European Commission. McDonald’s has historically pooled royalty fees from around Europe at a company in Luxembourg at a cost of hundreds of millions of pounds to its UK operation. In 2015, McDonald’s UK paid £123m in “franchise rights” to Luxembourg. In December last year, McDonald’s revealed it would move its base for non-US revenues from Luxembourg to the UK. It is creating a new international holding company, which will be responsible for most of the royalties received from licensing McDonald’s intellectual property rights outside the US. At the time, McDonald’s said the company would pay UK corporation tax. The £132.2m “franchise rights” payment was revealed in McDonald’s Restaurants accounts filed at Companies House for the year ending 31 December 2016. The payment cut operating profit from £414.3m to £282.2m. The company saw turnover increase 2.5% to £1.57bn compared with £1.54bn the previous year. Pre-tax profit was up 6% to £287.5m compared with £270.9m the year before. Turnover from company-owned restaurants fell to £1.17bn compared with £1.18bn the previous year while franchise sales were up to £401.6m compared with £352.9m the year before as McDonald’s UK continued with its strategy of franchising restaurants. The company paid dividends during the year of £60m (2015: £243m). During the period the company acquired the remaining 49% share in West One Foods, previously a joint venture investment, for a cash consideration of £13m. The 27 restaurants in the portfolio were transferred to McDonald's Restaurants. The majority of the restaurants were refranchised to a new joint venture entity named Capital Arches Group. In their report, the directors stated: “As we continue with our strategy of franchising restaurants, our turnover reduces as we move from recognising sales to recognising income from franchisees. However, due to strong sales growth from all store types, during the year total company turnover has increased by £39m to £1.57bn. The ongoing franchising strategy is also driving improved profitability, which is in line with the directors' expectations and objectives. The company operates in a highly competitive market. High street consumer behaviour impacts the company's turnover and variability of commodity prices impacts profitability. The company's gross profit has increased to £487m (2015: £441m). The improvements are due to higher sales and margins within company-owned restaurants and positive sales growth from franchised restaurants. The company's operating profit of £282m (2015: £238m) is in line with expectations. The level of business and the period end financial position remain satisfactory, both for the company and its subsidiaries, and the directors are confident of being able to develop the business further in the future.” Staff numbers increased to 38,913 compared with 35,879 the previous year. 


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