The secret of Subway to pay less tax

The tax optimisation of Subway is an integral part of its notorious prosperity in Europe. By paying less tax, the global giant of sandwich manages to reap considerable profits each year.

In 2013, the Subway restaurants in France contributed more than 26 million euros in royalties (amounts paid by franchisees in Exchange for the use of the brand). Indeed, according to article 6 of the contract written by Subway, 12.5% of the royalties must be paid out of the turnover of the franchises, that is 5-6% of what competing franchises pay. That’s what revealed the investigation by Céline Chassé from Special Investigation, broadcast on Canal + on October 19, 2015.

Of these 26 million, it turns out that the major competitor of McDonald’s has paid only €9500 taxes. The investigation found precisely the« sophisticated » strategy of Subway in order to pay less tax. A system of « opaque » according to Tom Bergin, Reuters journalist  who discovered how Subway escapes to the tax authorities in Europe.

The first step is to send the royalties in Holland, parent company of Subway in Europe. Therefore, all European Subway franchisees, led by a national subsidiary, directly pay the amount owed in Holland. The parent then reverse only the expenses necessary to the franchises scattered in Europe. Subway seems to have a low profitability and pay minimum taxes in each country.

In practice in 2013 on the 214 million € of royalties obtained from franchisees, 102 million euros remains in net profit, because indeed, Subway will not pay tax on the remaining amount. That’s what shows the ultimate stage of this well-functioning system.

The Dutch IRS does not tax remittances outside the borders. Profits (more than 100 million euros each year) of Subway therefore go in the bank account of the owner of Subway in Europe, in Liechtenstein. It’s in this tax haven, in the village of Triesenberg, specifically, that the money is placed in the warm. However, we know no more about the final destination of these benefits.

« Thanks to the structure of the company, Subway is not obliged to publish financial information, » says Tom Bergin of Reuters. He adds that there is a far « more limited understanding of what is happening inside Subway compared to its rivals McDonald’s and Burger King. »

This family business is therefore not accountable to anyone. Besides, in an e-mail sent to Céline Chassé of Special Investigation, the communications officer says that « Subway is in compliance with all European tax laws since the opening of the 1st point of sale to Portugal in 1992″.

However, even if Subway operates legally to pay less tax by making the most of his business, the European Commission has promised to counter tax optimization of large companies, like the global giant of the sandwich.