An announcement was made on July 11, 2009, that McDonald’s Corporation (MCD) will relocate its European headquarters from London to Geneva later this year to take benefit of preferential intellectual property tax laws.
The tax laws in Switzerland, particularly for intellectual property, have lured many foreign companies, particularly the regional European headquarters of US multinationals. Corporate tax rates can substantially be lower in Switzerland compared to the U.K. because of favorable Swiss tax laws.
However, the company notified that the move was undertaken to help the company manage its key international intellectual property rights effectively, including the licensing of those rights to its franchisees.
McDonald’s headquarters has been in London for a very long time.The company’s first outlet in the U.K. was opened in London in 1974.With this transition, the company joins Kraft Foods (KFT), Procter & Gamble (PG), Google (GOOG), Yahoo (YHOO) and Colgate Palmolive (CL), who have shifted operations to Switzerland to take advantage of the country’s congenial tax regime.
The changes in the U.K. tax laws on taxation of foreign profits from intellectual property rights, such as patents and trademarks will require McDonald’s pay twice as much tax on foreign profits from intellectual property.
McDonald’s European operations have grown rapidly in recent years, compared to its core US division operations and is now the largest region by sales.McDonald’s now operates in more than 40 markets in Europe.Comparable sale for the month of May 2009 jumped 7.6% in Europe compared to a rise of 2.8% in the U.S.
McDonald’s Corporation operates in the Quick Service Segment, which has been resilient to the economic turmoil to some extent.With lower disposable income, the consumers are shifting base to Quick Service Restaurants from Upscale and Casual Dining segments because of their lower priced menu.McDonald’s in the Quick Service Segment competes with Krispy Kreme Doughnuts (KKD), Yum! Brands (YUM), Papa John’s International (PZZA) and Chipotle Mexican Grill (CMG).
We maintain our Buy rating on the stock with a six-month price target of $59.00.
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