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McDonald's India in a fix over franchisee fee to US parent

Ambarish Mukherjee

NEW DELHI, July 11

McDonald's India. Pvt. Ltd. (MIPL), the wholly-owned subsidiary of US-based fast food giant, McDonald's Corporation, is in a fix over paying franchisee fees to its US parent.

The company wants to remit an amount of $13,05,000 to its parent immediately but is unable to do so because the Government feels that it did not inform about such arrangements at the time of opening operations in India in October 1996, when it launched i ts first restaurant here.

When McDonald's opened its operations in India, the company was permitted to set up shop in the country subject to the condition that no dividend would be repatriated during the first seven years of operation.

The company would, however, pay a service fee of five per cent on sales during this period but there was no mention about any franchisee fees.

Now, the company has informed the Foreign Investment Promotion Board that as early as in January 1996, much before opening its first restaurant in India, MIPL has entered into a Master Licence Agreement with the parent company according to which McDonald 's India should pay McDonald's an initial franchisee fee of $45,000 prior to opening each restaurant in India along with the monthly royalty of five per cent on gross sales. MPIL wants to remit the amount now.

While the Ministry of Tourism has not objected the Ministry of Food Processing is strongly against giving such permission to the company following which the Ministry of Industry has put it on hold, sources said.

According to Government sources, there are difference of opinion within the Government on whether it should take a lenient stand in such cases where a wholly-owned subsidiary of a foreign company hides information about its pact with the parent company r egarding payments in foreign currency.

Going by the company's declared plans of opening 80 restaurants by 2003, the total amount the company would remit back home stands at $36,00,000 as franchisee fees. This is over and above the company's monthly remittances of five per cent of its total sa les turnover as service fees to its parent.

McDonald's currently has 29 restaurants in India of which 16 are in Delhi, 10 in Mumbai, one each in Pune and Jaipur and another on the Delhi-Agra national highway.

McDonald's India Pvt. Ltd. has a paid-up capital of a little more than Rs 111.37 crore divided into 111,37,74,72 equity shares of Rs 10 each. Currently, one share of Rs 10 is held by McDonald's Corporation, USA, and the remaining 111,37,74,71 equity shar es of Rs 10 each, which was earlier held by McDonalds's Restaurant Operations Inc., has been acquired by McDonald's International Branch Holdings Ltd.