where is the research? The summary of the case

MCKINSEY. In mid-March, a Senate report sparked the “McKinsey Affair,” named after a private consulting firm paid by the state but unwilling to pay taxes. An investigation has been opened. The summary of the case.

The soufflé sank quickly. But the matter has not been forgotten. In mid-March, the McKinsey affair came to light in the latter part of the campaign’s first round of the presidential election, leaving Emmanuel Macron and the presidential majority impressed. A month after the release of a Senate report showing that the state is making a growing and almost systematic use of private consultancies and that one of them, in this case McKinsey, would pay no tax in France, where’s the research? Following the Senate revelations, the National Financial Prosecutor’s Office (PNF) opened a preliminary investigation on March 31 into aggravating money laundering tax fraud.

Investigations are still ongoing at the time of the debate between the two rounds of this presidential election, but no search has yet been carried out on the premises of the headquarters of the company’s French branch, located directly on the Champs-Elysees . Researchers also suspect actions that could lead to influencing peddling. At the same time, the Tax and Customs Administration is also conducting investigations to find out McKinsey’s exact tax situation. Bruno Le Maire, economy minister, wanted to be categorical on April 7: “McKinsey will pay whatever tax they owe to the French treasury.” McKinsey, for its part, defended itself in a press release published the day before: “McKinsey reaffirms that the company respects the French tax and social rules that apply to it. The tax approach applied by McKinsey is similar in the countries where the approach has been around for years and is consistent, this approach complies with the OECD’s guiding principles and is shared with the French tax authorities.

What is McKinsey France?

McKinsey & Company is a company founded in 1926 in the United States with the mission of providing strategic advice to both private companies and public entities. It is present in 65 countries around the world and is mainly located in France. Two offices have opened: one in Paris, on the Champs-Elysées, the other in Lyon. In France, the company has about 600 employees.

What missions has McKinsey performed for the state?

Under the mandate of Emmanuel Macron, the McKinsey firm was entrusted with several missions. In particular, he was responsible for the evaluation of the national health strategy at Accenture for two years (cost: 1.2 million euros). It was he who was also tasked with monitoring the viability of CAF’s IT solutions as part of the APL reform (3.88 million euros). From November 2020 to February 2022, McKinsey was mainly responsible for the vaccination campaign with the logistics organization, the implementation of indicators and monitoring tools and the preparation of an action plan for the 3rd dose anti-Covid vaccine recall campaign.

Why is McKinsey at the center of controversy?

Since March 16, the subject of McKinsey has been regularly mentioned in the media. But two things, summarized under the “McKinsey Affair,” stand out: first, the colossal 2021 increase by the State in spending to call on consulting firms (see chart below), including McKinsey; then the conclusion of the Senate report confirming that McKinsey has not paid taxes in France in ten years. It is for this second aspect that the name of the US cabinet came mainly from the work of the senators.

Evolution of the Council of Ministers' expenditure according to a Senate report
© Senate Report

Does McKinsey pay his taxes in France?

During their investigative work, the senators interviewed various stakeholders in the case, including McKinsey. Karim Tadjeddine, associate director of the company in Paris and co-responsible for the “public sector” activity, answered questions from MPs on January 18, 2022. Asked in particular about the company’s French tax situation, he said: “I say it very clearly: we pay corporate tax in France.” A statement undermined by the senators’ investigations. They claim that McKinsey has not paid corporation tax in France for ten years.

The corporate tax is determined on the basis of the profit made in France during an annual exercise. However, the Senate report only mentions the company’s turnover, that is, the sum of the collected amounts for all services rendered during the year. Costs are not taken into account. It is still difficult to imagine that the company with a turnover of 329 million euros in 2020 will have a deficit.

The senators therefore have doubts about a possible tax optimization thanks to the “transfer price” with the parent company of McKinsey. These are statements of the latter’s assets with its French subsidiary. These costs are considered expenses under French law, which leads to a decrease in the company’s net income at the end of the year, thereby reducing the tax. It is in this way, legally, that McKinsey France would manage not to pay taxes to corporations, which is the only issue here.

How Much Did the State of McKinsey Pay?

According to a public list of missions entrusted to McKinsey by the state and consulted by Le Monde, the company has pocketed at least €27,333,410 between 2018 and 2021. At least, because this is a list that is not limited. In addition, McKinsey was co-assigned in a variety of contracts, of which only the total costs are stated, without specifying the breakdown between the different firms.

For example, in 2018, five firms shared a juicy €82 million contract for consultancy services with the Ministry of the Armed Forces, which, in the event of an even split, would have allowed any company, including McKinsey, to pay €16.5 million in put on hold.

Without giving a precise figure, Olivier Dussopt, Secretary of State for Public Accounts, said on Wednesday, March 30, “The state spending with McKinsey in 2021 represents 5% in terms of strategic advice.” If “costs incurred in terms of strategy advice” include all expenditure booked by senators (893.9 million euros), this corresponds to 44.7 million euros. If it only concerns services with a “strong strategic component”, the amount would be 22.2 million euros for the year 2021 alone.

Is McKinsey the only consultancy commissioned by the state?

No. Above all, it is far from the most important. The Senate report shows that at least 2,070 consulting firms signed contracts with the state between 2018 and 2020. 20 of these, however, were concentrated… 55% of the contracts awarded. And McKinsey has only concentrated 1% of these contracts. It is Eurogroup that has raised the most (10%), ahead of Kior Talent and Capgemini (5% each) or even Ispsos (4%).

Close ties between McKinsey and LREM

If McKinsey is one of the consultancies used by the state, the company was already very close to Emmanuel Macron when he ran for president in the 2017 presidential election. Officially, the company alone played no part in the former economics secretary’s victory. Affairs. However, the head of state could count on the help of some members of the cabinet, such as Karim Tadjeddine, Eric Hazan or Guillaume de Ranieri, as indicated by Le Monde. In addition, two other McKinsey employees had even committed to La République en Marche, including Paul Midy, now general manager of LREM, and Ariane Komorn, responsible for the commitment division until 2021.

A conflict of interest between Laurent Fabius and his son Victor, associate director at McKinsey?

In France, the management of the Covid-19 health crisis has been the subject of much criticism. At the time of the start of the vaccination and the preparation of the health card, the name of the company McKinsey had already been released. Not without creating controversy. Because a certain Victor Fabius is deputy director there; the latter heads one of the company’s French poles. Victor Fabius is none other than the son of Laurent Fabius, President of the Constitutional Council, who is currently responsible for validating or not validating the implementation of the vaccination control tool. For some there was no doubt: the wise men had given the green light to facilitate the affairs of the son Fabius. Then there were conflicts of interest.

However, it is not the Constitutional Council that made the contract, but the Directorate-General for Health. And these were logistical missions. Other companies were also mandated for other aspects of the use of vaccination. In addition, Victor Fabius is responsible for the “Marketing and Sales” department. Karim Tadjeddine is responsible for the “Public Sector” activity.

Is the use of consultancy firms new?

Again, these consultancies are nothing new. Both during Emmanuel Macron’s five-year term and during previous terms in office. By way of comparison: under the chairmanship of Nicolas Sarkozy, 1000 euros in operating costs were between 2 and 4 euros in consultancy costs, compared to about 1.50 euros at François Hollande. An amount that stabilized at Emmanuel Macron until 2018.

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