From Casablanca to Delaware, How McKinsey Plays With Tax Officials in Morocco

The US firm’s Casablanca subsidiary does not pay income tax due to chronic losses, despite nearly 300 million dirhams in business in 2020. Like its condemned practices in France, where a preliminary investigation was opened by the Financial Prosecutor’s Office for “serious money laundering of tax fraud”, it is named after the very outlandish allegations that this “tax optimization” was allegedly justified. Is.

The French National Financial Prosecutor’s Office on Wednesday announced the launch of a preliminary investigation into “Serious Laundering of Tax Evasion” Targeted McKinsey. The decision follows the investigation opened on March 31, itself triggered by the publication of a Senate report condemning “A Great Event”, Given the high number of services and the stratospheric expenditure of the polity.

publication of an article in chained duck Title The incredible myopia of the French tax authorities First the powder was set on fire. The satirical weekly reported the payment of all profits of McKinsey France (which has a turnover of 300 million euros) to its parent company based in the United States. If it is legal, the company would have to justify itself to the French tax authorities. What doesn’t happen in McKinsey’s case raises suspicions of tax evasion.

In short, the US firm is suspected of not paying taxes in France for 10 years, from 2011 to 2020, thanks to a tax optimization system.

In Morocco, the same system was implemented by McKinsey & Co. Morocco. Created in 2004 in Casablanca, the branch has gained advantageous CFC status (Casablanca Finance City) and as a regional center covering French-speaking sub-Saharan Africa, has entered into manifold contracts with the state. The Moroccan unit posted a generous turnover of around 287 million dirhams (MDH) in 2020, but spent a lot to post only a negative net result of around 34 MDH. As a result, it does not pay corporation tax, except for a minimum contribution of 0.5% on turnover, operating income and financial income, ie a nominal amount of approximately dirhams 565,000.

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The tax optimization system that allows it to evade tax authorities is not new, nor has McKinsey become an exception in this area, with many multinational service companies having adopted it over the years around the world. The principle is quite simple: to increase costs as much as possible, especially to outsiders, as shown by data taken from the summary statements of McKinsey & Co. Morocco: the remuneration of foreign senior consultants whose names are justified in Morocco. Special expertise in 2019 for contracts won by the store (against 118 MDH for local employees), i.e. 104 MDH, mission, travel and other buttock clamps for 61 MDH, including studies and services (76 MDH) and supplies Purchase is not included. Around 78 mdh.

McKinsey Morocco operating expenses in 2019. Source: Summary Report

Thus, under the heading “Other External Charges”, we find the exorbitant total amount of 206 MDH, which is thus assimilated with the famous “transfer value”, the polite name to indicate that services for What disappears abroad in the name of billing. parent company to its subsidiary. Fresh money which is thus deducted before dividend accrues before tax puncture.

McKinsey’s exterior and personnel expenses in 2019. Source: Summary Description

Like the French case, McKinsey & Company Morocco (Casablanca) is owned by the United States. A mirror shell, McKinsey & Company Inc. Morocco was specifically established in 2004 to control more than 99% of the tax haven of the state of Delaware ($175 on the annual tax balance sheet), with the unique residual portion devoted to the New York parent company founded in 1966. It is this inexhaustible mechanism that pumps the Casablanca firmament’s hunting ground, thus expanding into Morocco and into French-speaking sub-Saharan Africa.

McKinsey & Company Inc. is based in Delaware, Morocco. Source: Delaware State / Desk

As in France, in Morocco, McKinsey responds with a loud cry, as did the cabinet at length media 24, Explaining, hand on hand, that all this treasure trotting across the Atlantic comes at the staggering cost of expertise, intellectual property whose valuation is discretionary, or even the cost of hosting a subsidiary for a country. Privilege, which pays other taxes, if he pays only the bare minimum contribution to corporate tax…

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But all connoisseurs of the siphoning machine method laugh at this magician’s argument, which pits its credibility and its brand in the face of local competition, and which points the finger at other international firms, including White Collar and Power Point, if not as much. is spent. More.

“The equation is simple, at the beginning of the activity, for the first 2 or 3 years, you can imagine running a loss, but then you are considered profitable, and if it is not because of the transfer. Pricing, its straightforward. Which means it is the profit which is transferred abroad. It is called escapism.” A wise advisor decides. For that, and for others, there is no “transfer pricing practice” that justifies older losses than capital held at 45 MDH as reported by Auditor Mazar in May 2020, while expanding turnover , Human resources are getting stronger ( more than 100 employees): “Either they exaggerate to avoid profit elsewhere, or they don’t, and in any case, it needs stricter control”. From the tax authorities and the Office des Changes…

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About the Author: Hanley Mallin

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