McDonald's taking the piss on corporation tax; HMRC falling for it.

From The Telegraph:

The British arm of McDonald’s paid £123m for “franchise rights” last year, as part of a controversial structure that is under investigation for enabling unfair tax avoidance.

The European Commission launched a probe last year into whether Luxembourg’s tax arrangements for McDonald’s amounted to illegal state aid, as part of a broad crackdown on companies that route money through subsidiaries to cut their global tax bills.

The point being that such royalty payments are an allowable deduction for UK corporation tax purposes and there is only 5% withholding tax on payments of 'royalties' to an entity in Luxembourg under Article XII of the UK-Luxembourg double tax treaty (I thought it was 0% but it says 5%). That money then gets shuffled out of Luxembourg tax-free to heck knows where.

Now, let's have a proper read of that Article:

(1) Royalties arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. However such royalties may also be taxed in the Contracting State in which they arise and according to the law of that State, but if the recipient is the beneficial owner of the royalties the tax so charged shall not exceed 5 per cent of the gross amount of the royalties.

(2) The term "royalties" as used in this Article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work, any patent, trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience.

(3) The provisions of paragraph (1) shall not apply if the recipient of the royalties, being a resident of a Contracting State, has in the other Contracting State in which the royalties arise a permanent establishment with which the right or property giving rise to the royalties is effectively connected. In such a case, the provisions of Article VII shall apply.

How on earth does McDonald's get away with claiming that the royalties don't relate to 'permanent establishments' which they have in the UK? Some McDonald's restaurants are owned and operated by McDonald's corporation itself and some are franchises, but given the level of control which McDonald's has over its franchises, I'd still count them as permanent establishments.

Ergo, on a sane reading of the treaty, those royalty payments are liable to perfectly ordinary UK corporation tax.

(Clearly, McDonald's is paying vast amounts of VAT, so overall it might well be paying 'too much' tax in total, I'm just saying.)

McDonald's Top Trumps

Here's a fun game for two or more players (one to ask the questions, the others to answer) while whiling away the time at Mickey D's. If you turn over the paper placemats, they have a list of every item on the menu, with columns showing how much energy (in kcals), protein, fat, carbohydrate, salt etc (in grams) is in each. Printed in grey six-point type, of course, so it's not a game for the faint hearted short sighted.

For example, choosing "Energy" as the category, the questions might be which option has more kcal's:

A. A portion of Flora or a portion of strawberry jam?

B. Sausage and egg McMuffin or Double Bacon & Egg McMuffin?

C. Ice cream cone with Flake or strawberry sundae?

Click and highlight to reveal answers:

A. Flora - 55 kcals; strawberry jam - 50.

B. Sausage and egg McMuffin - 420; Double Bacon & Egg McMuffin - 395.

C. Ice cream cone with Flake - 195; strawberry sundae - 300.

Bonus points to the first person to find a menu item which contains nuts, according to the relevant column in the "Allergen Information" section.

Health Scare Story Du Jour

This story was in today's Metro but the only place I could track it down was DNA India. It's full of long words and technical terms so "it must be true". I'll leave it to the experts (i.e. you) to point out all the half-truths, inconsistencies and inherent contradications:

Washington, DC: Asthma patients should keep their hands away from heavy, high-fat meals, suggests a new study. People with asthma who consumed a high-fat meal showed increased airway inflammation just hours after the binge, according to Australian researchers who conducted the study. The high fat meal also appeared to inhibit the response to the asthma reliever medication Ventolin (albuterol).

"Subjects who had consumed the high-fat meal had an increase in airway neutrophils and TLR4 mRNA gene expression from sputum cells, that didn't occur following the low fat meal. The high fat meal impaired the asthmatic response to albuterol. In subjects who had consumed a high fat meal, the post-albuterol improvement in lung function at three and four hours was suppressed," said Dr Lisa Wood, research fellow of the University of Newcastle.

Asthma prevalence has increased dramatically in western countries in recent decades, which indicates that environmental factors such as dietary intake may play a role in the onset and development of the disease.

Westernised diets are known to be relatively higher in fat than more traditional diets. High dietary fat intake has previously been shown to activate the immune response, leading to an increase in blood markers of inflammation. However, the effect of a high fat meal on airway inflammation, which contributes to asthma, had not been investigated.

Researchers recruited 40 asthmatic subjects who were randomised to receive either a high-fat, high-calorie "food challenge", consisting of fast food burgers and hash browns containing about 1,000 calories, 52% of which were from fat; or a low-fat, low-calorie meal consisting of reduced fat yogurt, containing about 200 calories, and 13% fat.

Sputum samples were collected before the meal and four hours afterward, and analysed for inflammatory markers. Subjects who had consumed the high-fat meal had a marked increase in airway neutrophils and TLR4 mRNA gene expression.

TLR4 is a cell surface receptor that is activated by nutritional fatty acids: TLR4 'senses' the presence of saturated fatty acids, and prompts the cell to respond to the fatty acids as if they were an invading pathogen, releasing inflammatory mediators. While the study didn't definitively distinguish between high fat and high energy, this increase in TLR4 activity suggests that dietary fat is important to the effects.

Subjects who had consumed the high fat meal also had reduced bronchodilator response as measured by FEV1 percent predicted and FEV1/FVC percent, when compared to those had consumed the low-fat meal.

"This is the first study to show that a high fat meal increases airway inflammation, so this is a very important finding. The observation that a high fat meal changes the asthmatic response to albuterol was unexpected as we hadn't considered the possibility that this would occur," said Wood.

The research will be presented at the ATS 2010 International Conference in New Orleans.

Those brown plastic trays in McDonald's

We bumped into some friends in McDonald's today, and the conversation turned to the durability of their brown plastic trays (somebody left one at my flat a long time ago and it is still going strong. The design has not changed in decades).

M... had a closer look and noticed that there is a date stamp on the back on the back of them, one 'clock' is for the year and one is for the month in which they were manufactured. So the one I've got at home was made in April 1995, for example:

Monday funnies

An article in today's City AM raises two issues:

1. That a vague grasp of geography is useful when relocating your head office:


2. The article also refers to this fascinating bit of research:

UK tax refugees stoke offshore property prices

Most offshore tax jurisdictions within easy reach of Britain are bucking the European property market slump as wealthy Britons prepare for an exodus from harsh UK tax rises, according to a survey by The Sovereign Group.

Property values in Monte Carlo and Gibraltar, two of the most prominent European destinations for "ex-pat" money, are holding firm or increasing while prices around them on the Cote d'Azur and the Costa del Sol have plunged by up to 50%. Jersey, Guernsey, the Isle of Man and Geneva are also enjoying trend-bucking strength in their housing markets.

"The facts speak for themselves here," said Howard Bilton, Chairman of The Sovereign Group. "Property prices in the south of France and southern Spain are languishing in the worst slump they’ve seen in many years but on their outskirts are two little areas – Monaco and Gibraltar -- where the market is extraordinarily resilient. We believe, and all our local sources are telling us, that much of this disparity is because of interest from a new breed of British tax refugee as the UK government's tax-and-spend folly begins to bite."

Yup, this phenomenon is exactly as I predicted here. To cut a long story short, it is a government's job to make a country the nicest possible place to live; if it does this properly, rental values go up.

One of the things a government can do to make a country more attractive is to cut income tax rates, or as is illustrated by the research, keep your tax rates stable while surrounding countries increase theirs. The net present value of the tax saving that a tax-exile expects flows straight through into higher property prices in the tax haven, hence the slogan "All taxes come out of rent", or, in terms of Ricardo's Law of Rent, a £1 income tax cut just leads to an increase in rents of nearly £1, and, depending on the discount rate you apply, a jump in property values of well over £10.

So although I am a rabid tax cutter, I'd like to see taxes cut for the benefit of present and future generations of everybody in general and the productive economy in particular, rather than the narrow and static class of "people who happen to own UK land and property at the time that tax rates are cut", hence why it is important to have some sort of tax on property or land values in place before you start slashing taxes on incomes and output, to prevent the tax cuts just leading to another property price bubble (albeit a semi-permanent one).

The Basic Unit Of Evil

From the BBC:

Pre-packed salads are often not the healthier option, with some supermarket items higher in calories and fat than a Big Mac and fries, a report warns...

I have no particular interest in proscribing what people eat or any specialised knowledge on healthy diets - but what stinks here is the fundamental assumption that a Big Mac with chips* is the quintessence of an unhealthy meal.

Why? It's a bread-bun, some meat, a bit of salad maybe, some potatoes fried in vegetable oil, washed down with a drink that's 99% pure water, end of.

* I don't use the f-word if at all possible.

Damn!

... and one of my colleagues ate it this lunchtime.