McSwiss

Contrary to some media reports, the fast-food giant isn't relocating its European operations, but rather creating a new headquarters to coordinate activities at locations such as Paris, London, Munich and Vienna.

"There will be no redundancies at our four pan-European offices," McDonald's spokeswoman Cath O'Grady told Deutsche Welle. "What we're doing is consolidating our senior management."

O'Grady added that the consolidation would allow the company to better coordinate intellectual property rights issues, saying that Geneva offered a "business-friendly environment."

In choosing Switzerland, McDonald's is following the examples of other multinational corporations such as Kraft, Proctor & Gamble, Google and Yahoo. Critics say the real reason for the trend is to evade national tax authorities.

"Of course it's about taxes," John Christensen, Director of the International Secretariat at the Tax Justice Network, an independent organization launched by the British Parliament, told Deutsche Welle.

"Intellectual property rights include things like logos, licenses, international royalty programs and patents that are bundled up and located in subsidiary companies, and the subsidiary company will be located in a tax haven like Switzerland," Christensen said.

Deserve a tax break today?

The corporate structures of McDonald's, like many multinational business institutions, are impenetrable to laymen. Christensen tried to explain the advantages of doing business in Switzerland.

"What McDonald's will do is charge very high rates for the use of its logo and any of its patents or copyrights and use that as a basis for shipping profits out of the countries where they are generated and into places like Switzerland," Christensen said.

That analysis has been echoed by other taxpayer advocates, for example, Taxpayers' Alliance spokesman Matthew Sinclair in an interview with American Public Media.

So why go Swiss now? Last year, Britain - one of McDonald's primary management locations - announced plans to close loopholes affecting company's foreign profits from intellectual property rights.

An anonymous McDonald's spokesperson quoted by the Financial Times denied that the firm's decision to set up headquarters in Geneva was related to those plans.

Still, fears that a tightening of Britain's tax code would lead to a mass exodus of big companies forced finance minister Alastair Darling to scrap those plans. And despite Darling's climb down, the fears may be becoming a reality.

Astonishing failure

The British government stands to lose a significant amount of revenue as multinational firms decide to locate or relocate parts of their operations to more tax-friendly parts of the globe.

Essentially, Christensen says, companies will have national governments over a barrel until the latter learn to think and act internationally.

"The only solution lies in agreeing to different frameworks for taxing companies, and the logical one, almost all experts agree, is the unitary taxation system, which is the basis of taxation within the United States," Christensen told Deutsche Welle. "There, states use a formula for apportioning taxes according to a formula about where the profits are actually created."

But what works within the US does not necessarily prevent American companies from relocating abroad. Already last year, the Swiss daily newspaper Tagesanzeiger reported that four billion-dollar US companies were planning to relocate their corporate headquarters to the Alpine nation.

"This is an astonishing failure of international cooperation," Christensen said. "The impact on the revenues of the countries where companies actually create the profits is already enormous. Without a framework for international cooperation there'll be a mass exodus or an accelerated race to the bottom in corporate tax rates."

Hoist by one's own petard

So why don't countries like Britain work internationally to rein in companies that, to paraphrase one of McDonald's best-known slogans, feel they deserve a tax break today?

Larger countries often point fingers at alleged tax havens like Switzerland, Luxembourg and even Ireland, but much of the problem is homegrown.

"Britain has been a leading player in promoting tax competition and now finds itself a major victim of it," Christensen said. "The UK's development strategy has not been to compete on the basis of extremely high quality infrastructure or really high levels of labor productivity. Britain's gone the opposite way and tried to undercut taxes to attract investment."

In other words, Downing Street has been beaten at its own game. Switzerland's basic corporate tax rate, for instance, is at least eight percentage points lower than Britain's.

"The other thing is that the city of London, of course, is a massive permanent lobby for tax cuts for business," Christensen added. "So it would be hypocritical indeed [for Britain] to blame McDonald's for taking this decision."

Getting rid of the hypocrisy and closing international tax loopholes would require a major change of orientation not just in Switzerland, but countries like Britain as well.

But few believe that there's sufficient political will for such an about-face - which is probably one reason why the Golden Arches' European headquarters is to be located in Geneva, not London.

Author: Jefferson Chase

Editor: Michael Knigge