Burger King the Latest to Jump on the Corporate Tax Inversion Bandwagon

By David Dayen, a lapsed blogger, now a freelance writer based in Los Angeles, CA. Follow him on Twitter @ddayen

A number of corporations have engaged in corporate tax “inversions” this year, which typically involves a large U.S. company merging with a smaller counterpart in a lower-tax country abroad, then moving the corporate billing address to the lower-tax country to reduce the overall tax burden. The actual headquarters and the executives go nowhere, but the nominal address changes so the company can avoid U.S. tax rates. A number of corporations in the pharmaceutical space have pulled this off in 2014, but it took the drugstore giant Walgreen to flirt with the idea (through a merger with the Swiss company Alliance Boots) for the non-financial press and the public to really catch on. Outcry actually stopped Walgreen from going through with the inversion; they merged with Alliance Boots, but kept their headquarters in the U.S. Clearly, it was easier to rally public scrutiny to a consumer-facing brand attempting to skip out on America while still using the public resources afforded any company selling their wares here.

Now, the same coalition that stopped the Walgreen inversion will get another chance with Burger King:

Burger King Worldwide Inc. is in talks to buy Canadian coffee-and-doughnut chain Tim Hortons Inc., a deal that would be structured as a so-called tax inversion and move the hamburger seller’s base to Canada.

The two sides are working on a deal that would create a new company, they said in a statement, confirming a report on the talks by The Wall Street Journal. The takeover would create the third-largest quick-service restaurant provider in the world, they said.

Inversion deals have been on the rise lately, and are facing stiff opposition in Washington given that they threaten to deplete U.S. government coffers. A move by Burger King to seal one is sure to intensify criticism of them, since it is such a well-known and distinctly American brand.

Tim Hortons actually has a pretty big following in America as well, particularly in the northeast and upper Midwest. They have over 850 U.S. locations (compared to 3,500 in Canada), with over $500 million in annual U.S. sales. They have 100 co-branded stores in America with Cold Stone Creamery, the ice cream shop owned by Kahala Management.

So this is at one level a merger between two American brands (which would apparently continue to operate stand-alone). Only Tim Hortons has a corporate structure and a history and a foothold in Canada, so Burger King wants to jump across the border and take advantage of their newly minted 15% nominal corporate tax rate.

Oddly enough, this would be the second burger joint pairing for Tim Hortons. In 1995, Wendy’s bought them out, and owned them for 11 years. After Bill Ackman and some other activist investors bought significant shares in Wendy’s in 2006, Tim Hortons spun back off through an IPO (traded on the NYSE), and by 2009 had organized themselves as a Canadian public company. (Hilariously, Ackman today has a big stake in Burger King.) As far as I can tell, Wendy’s never considered moving to Canada in 1995 to lower their tax rate. But it’s a different world now.

Interestingly, Scout Capital Management and Highfields Capital Management just bought a bunch of Tim Hortons stock in what seemed like a prelude to a private equity deal. They requested that Tim Hortons curtail U.S. expansion plans and take on more debt. So Burger King may save Tim Hortons from a private equity nightmare, in addition to saving themselves a big chunk of change. Of course, Burger King itself is both public but also controlled (through 70% of the shares) by private equity company 3G. If you find any company these days not touched in some way by private equity, let me know.

Burger King will certainly face some pressure to back down on the corporate restructuring aspect. The President has given a number of public statements against inversions, and the Treasury Department is in the midst of putting together rules on the subject to try and discourage them. Democrats seem to think that railing against companies deserting America will play well in the midterms, and they’re painting Republicans as indifferent to the practice. For their part, Republicans pay lip service to wanting to address inversions, but only in the context of overall tax reform that lowers corporate rates as it also closes loopholes (or at least pretends to do so). This is rooted in the noble lie that American corporations pay the highest tax rates in the world, which simply isn’t true when you look at the effective rates rather than the nominal ones. Corporate tax collection as a percentage of GDP was 17th out of 27 wealthy countries in 2011, per the OECD.

Long before the President and the Dem machine got involved, consumer and anti-corporate groups have been calling attention to inversions, which certainly serve to satisfy the drive for higher corporate profits, but carry a heavy aura of unseemliness with them. Especially as this one involves a fast-food chain that’s already in the sights of activists for their low wages, I think it’s ripe for a public campaign. I asked Frank Clemente, executive director of Americans for Tax Fairness, to comment about the rumored inversion:

Burger King’s announcement is one big whopper. If the company goes through with an inversion and deserts America, its customers are likely to bring their business down the street to the nearest McDonald’s or Wendy’s. Walgreens got the message that its inversion would be very damaging to its brand, and it walked away from a deal. Hopefully, Burger King will do the same. While changing its address to Canada rather than a tax haven country may not appear on the surface to be so objectionable, if the intent is to dodge paying its fair share of taxes the American people are likely to be no less sympathetic to Burger King.

With the 15% nominal rate in Canada, this is absolutely a move about taxes. As WSJ points out, a 2010 merger between Valeant Pharmaceuticals International and Biovail Corp, which led to a redomiciling in Canada, produced a company that “now has a tax rate less than 5%.” So this move would clearly save Burger King billions of dollars.

Once one of these brands successfully breaks through and moves their headquarters overseas, without significant blowback that hurts sales, it’ll be a run for the exits. Capital mobility has a long and storied history, and it’s even easier when you don’t have to move anything, just simply change the address on the corporate letterhead.

The bigger issue here is how the concept of shareholder value highlights the profit-at-all-costs mentality that has permanently changed the worldview inside corporations and the pools of private capital that increasingly run them. And I don’t know exactly how that changes. Maybe inversions are just a tipping point into some activism that gets at the fundamental root cause.

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This entry was posted in Free markets and their discontents, Hedge funds, Investment management, Private equity, Ridiculously obvious scams, Taxes on by .

About David Dayen

David is a contributing writer to Salon.com. He has been writing about politics since 2004. He spent three years writing for the FireDogLake News Desk; he’s also written for The New Republic, The American Prospect, The Guardian (UK), The Huffington Post, The Washington Monthly, Alternet, Democracy Journal and Pacific Standard, as well as multiple well-trafficked progressive blogs and websites. His has been a guest on MSNBC, CNN, Aljazeera, Russia Today, NPR, Pacifica Radio and Air America Radio. He has contributed to two anthology books, one about the Wisconsin labor uprising and another on the fight against the Stop Online Piracy Act in Congress. Prior to writing about politics he worked for two decades as a television producer and editor. You can follow him on Twitter at @ddayen.


      1. mellon

        The real reason this is happening should be obvious to many people and it has nothing to do with taxes and everything to do with the odious and controversial “investor state dispute settlement” (commonly abbreviated “ISDS”) clauses in free trade agreements which give foreign corporations “special rights” to sue countries for huge amounts of money should those countries change a single law in the future that “affects their profits adversely”.

        1. cnchal

          clauses in free trade agreements which give foreign corporations “special rights” to sue countries for huge amounts of money should those countries change a single law in the future that “affects their profits adversely”.

          Words. What they mean depends on who’s talking.

          When it comes to the existing and proposed trade deals, the ones where resistance is building, you are narrowly correct. “Change a single law in the future” is however a huge exaggeration.

          The laws we already have, get broken bent and ignored, and sometimes even obeyed. Pretty well every law ever written has been broken. Otherwise why write them. Or, is it just another scam to keep police officers, prosecuters, judges, and jailers employed? You know, a part of government.

          I don’t like the trade deals being negotiated with a blackout. The people at the negotiating table are not representatives of the people. Their job is to negotiate the carve up of the people. That is why I think there should be a giant pause with any new trade deals, let the various adjustments occur without the distortion of new laws being piled on.

          That has practically nothing to do with PE parasites country shopping so they can grab millions more for themselves.

      1. hunkerdown

        Not even with someone else’s plumbing. Weak coffee and BAKED donuts? What kind of nonsense is this?

  1. John

    BK is one of those companies that sells things that are bad for you, kinda like alcohol or oil. Eat too much of it and it will send your blood pressure and cholesterol levels to the moon. And like the oil or alcohol sector, BK does not pay for the damage to society it causes. It gets a free pass.

    The bottom-line is BK owes society a lot more than is stated.

    Another aspect which drives the mad dash for lower tax rates is companies get a twofer when they do so. Their accounting fees are lowered because they can also cut the size of the the army of people working in the finance department tracking tax deductions.

    1. MikeNY

      ITA w/ your first paragraph. Plus, they free-load off the tax payer as a large % of local franchise employees collect public assistance. But 3G makes out like bandits, so all is well in the kleptocracy.

      Our tax code is an abomination. It is basically 10,000 page license for kleptocrats to steal.

      It seems like the capitalist world is in an ass-backward race to the bottom with corporate tax rates, “to entice business formation”, doncha know. It’s fiscal Stockholm Syndrome.

  2. Robert Dudek

    It’s hard to get used to “Soviet Canuckistan” being a tax haven. But I guess it’s true.

    1. frosty zoom

      ah, those days are long gone..

      now we have an evangelical petrostate ruled by the viceroy harper.

  3. dearieme

    I know this might seem very radical, but couldn’t the US just change its lunatic laws on company taxation?

    1. Art Eclectic

      The lunatic laws are written by the very same corporations who are looking to protect their business models. They set up loopholes like this one that only a company with the right size and resources can take advantage of, which puts their smaller competitors are a disadvantage.

      Because, just making a better product and winning the old fashioned way is clearly out of the question.

      1. RUKidding

        Why should they do that? They witnessed the criminal gangs, like the Mafia, and said: hey! good idea. And the rest is history. Actually I think I do the Mafia a disservice with this comparison.

      2. MtnLife

        At this point, making a better product is significantly harder due to the damage already done by wage stagnation. Making a better product costs money in both materials and labor. This period where Americans viewed quantity preferable to quality alongside manic profit chasing has led to the much discussed crapification of everything and squeezing of labor costs. Labor that has been squeezed this long can now barely afford crapified products and faces serious obstacles in any attempted change in behavior. Families that before could have afforded a nice piece of furniture and a nice vacation every year got squeezed down to where they could only afford one nice object and instead chose crapified versions of both – voting with their money. Now that they can maybe afford one crapified object if they are lucky, how will they ever support the people making nice stuff (and suppliers of higher wages) again? I keep my life simple on a majority of levels so that I can obtain quality items in the areas I do make purchases. With my tools I follow the mantra “Curse a tool once (when you buy it) or every time you use it (inferior products)”. I am forced to look nearly exclusively to the wealthy to subsist since the average person can no longer afford what I do as much as I try to keep costs down. I’ve produced custom tables for less than some of the mass produced crap I’ve seen them put in houses on those design shows and it’s still such a small segment of the population that can even afford those anymore.

    2. RUKidding

      Who’s gonna make changes to tax laws happen? The same 1%ers who arrogantly off-shore everything possible in the name of MOAR MONEY for the corporate-fascist greedheads at the top, are the same greedy out of control 1%ers who WRITE the damn tax laws.

      It’s all like: nyah nyah nyah, wachoo gonna do??
      Plus: oh woe is meeee, pity me the 1% who are so unfairly taxed. Some citizens still believe this crap and AGREE that the 1% should go off-shore because, you know, it’s just soooo unfair here in the land of not-free and the not-brave for those at the tippy-top… because, you know, the poorz are ripping them off or something. Go figure.

  4. Skeptic

    Tim Horton’s Coffee Shop—-Fraudulent Canadian Icon

    Absolutely worst “coffee” in the World! Watch the caffeine zombies line up for the stuff and the fats foods. View the display screens all about mesmerizing the obese and sugar stunned to buy more, more and more! Meanwhile Canadians complain about the obese plugging up the arteries of their beloved Public Healthcare System! Many of those Canadians actually think their lovingly named Tim’s is Canadian. Not so, bought our years ago by fellow fats foodster, Wendy’s. The only thing Canadian about Tim’s is the lowly paid and treated labor.

    Coffee Tip: With the advent of single serve machines, I have found a local grocery that has one of these. Coffee to rival Star$$$$$ and only $1.50 a jolt. Try it today, profit squeeze the Fats Foodsters.

    Woe, Canada!

    1. cnchal

      Timmies is everywhere in Canada. Sometimes the stores are within eyesight of each other. On a long street there might be a dozen of them.

      There should be a $5.00 per donut tax to fund future health care expenses for the inevitable heart disease one gets from eating there, or at any of the crapified food emporiums.

      All they are doing is selling a highly disguised confection of sugar, fat and salt, low level poison really, and the externalized future expenses like medical and early funeral costs are borne by society and individual families, while the executives dislocate their shoulders slapping each other on the back for a job well done.

      And about the “Stone Cold Creamery”. Who is the criminal that came up with a 2500 calorie milkshake? Really?

      FU Timmies. And that also goes for Burger Crap and the rest of the shit food sellers.

      That PE is in the middle of it all is not surprising. Tax dollars in the form of wages and benefits to public servants gets used to enrich a handful of the greediest a$$holes anywhere.

      1. inode_buddha

        My Tim Horton’s Rant

        Its such a simple thing, really. Why the blue hell do they design their parking lots the way they do? It causes maximum traffic circulation around their place. It also causes 3-block traffic jams on a 4-lane boulevard since there is only one way in or out, and it is shared with the drive-thru lane and 2 other tennants of the same plaza.

        I don’t drink coffee, and I have to get to work.

        I have a plan to start blowing up timmies every time I see one. Until they get the idea, that the customer needs a pleasant shopping experience. The pleasant shopping experience includes sane parking lots. Until this happens, I will stock up on explosives.

  5. sharonsj

    If they go ahead with this, then we need to boycott Burger King. It worked with Walgreen’s, didn’t it?

    1. Art Eclectic

      Heh, I think a lot of consumers already boycott Burger King on basis of their product being crap. It’s because customers are not thronging in the doors that BK has to resort to tax shenanigans to keep shareholders happy. As I said upthread, making a better product seems to be strangely off the table.

  6. Rodger Malcolm Mitchell

    A 100% BS issue. There is no good reason why an American corporation should pay more taxes to the U.S. government than it would pay to a foreign government. And there are some bad reasons:

    1. The U.S. government, being Monetarily Sovereign neither needs nor uses tax dollars. Even if all federal taxes fell to $0, the federal government could continue paying its bills, forever.

    2. Paying federal taxes reduces the U.S. money supply, and therefore is anti-growth.

    3. The more taxes a U.S. company pays, the less competitive it is, worldwide. Also, the more it has to charge its customers.

    This entire discussion is based on the false belief that somehow it benefits America for U.S. companies to pay taxes. Truly nuts.

    1. curlydan

      Actually I saw about 10 reasons in comments above as to why Burger King should pay more taxes to the U.S. government than to a foreign govt: Burger King taxes our health, taxes our medical system, taxes our food stamps program, etc

      So yes, they owe us a lot of taxes on their profits in return

      1. RUKidding

        Taxes our infrastructure. Taxes our IRS & State Tax systems (for workers). Lots of ways that BK benefits from being in the USA, but somehow they are not supposed to pay one thin dime bc that’s unfair. hmmmm…

      1. wbgonne

        In a sane world, nations would use international organizations to preclude transnational corporations from forum-shopping for taxes by restricting predatory corporate tax policies. Alas …

    2. MyLessThanPrimeBeef

      Taxation gives value to the currency.

      No paying taxes undermines that support.

      Without that support, the ability to print (and spend) money is suspect, as that money becomes suspect or less valuable, because taxation gives value to said money.

      Thus, government spending depends on taxation.

      That is, taxes pay for government spending….indirectly, according to this analysis.

      1. Robert Dudek

        That’s been the standard line in MMT thinking – the reason we need taxation. I don’t buy it. Fiat currency maintains its hold by being legal tender, with the full force of the federal government behind it. The government can and does FORCE people to use the currency; dropping taxes to zero wouldn’t change that.

        I say drop taxes to near zero, print money and give it to the poor and have them spend it in the economy. Then you’d have no/low taxes AND less inequality. The only good reasons for any taxes at all are of the Pigouvian sort.

        1. hunkerdown

          The government can and does FORCE people to use the currency; dropping taxes to zero wouldn’t change that.

          People can and do participate in the barter economy and in gift economies on a regular basis, regardless of the law, because the market economy does a really pathetic job of allocating abundant goods. People even grow tomatoes in their back yards and there’s not one thing that Treasury can do about it. A currency is exactly as good as what it can buy.

          Any more laughably unsubstantiated assertions that a large body of scholarly work is just plain wrong solely because it impairs your narratives?

    3. MikeNY

      Dude, you’re brilliant.

      Let’s eliminate all taxes, personal and corporate, and mint a $1 trillion coin for EVERYONE!
      Everyone’s a trillionaire; everyone retires; everyone wins!

  7. bob

    These blood suckers only move paper to other countries in order to shift their tax burden onto us dummies that work in their stores for next to nothing and pay for their goods.

  8. KnotRP

    So a country with a single-payer health system can afford to tax corporations less than the bastion of free-market capitalism? (*head explodes*)

    1. cnchal

      Funny you say that.

      When you take the financial innovation scam between you and your doctor away, it frees up money so Canada’s wealthiest can have even more.

    2. Robert Dudek

      Our health care system is more efficient (on a cost per capita basis). Plus we have higher consumption taxes to serve as a revenue source (Including rebates for the poor to make it slightly progressive). Another attractive feature for companies in Canada versus the US is that they don’t have to lure talent with elaborate health care plans, as the provincial governments take care of basic health care.

      1. HotFlash

        1.) Re our GST/HST: “Including rebates for the poor to make it slightly progressive. ” This rebate for low income folks was a sop to make a consumption tax palatable to the plebes — essentially bribing them with their own money.

        2.) Re single-payer: Only the entrenched medical/pharm/insurance industry in the US prevented the adoption in the US of a single-payer system. “Real’ businesses, eg, manufacturers, retailers, etc would have been delighted to offload the cost of med ins to the govt. But gettin’ to be fewer of them every day…

        1. frosty zoom

          actually, speaking as one of the plebes, i receive far more in rebates than in i pay in gst as the majority of my money is spent on non-taxable food.

          the real sop was lowering the gst/hst by 2%. it sent the government into deficit (well, one of the reasons) and basically only saves money for people buying yachts.

          1. cnchal

            and give the Ontario government more room to raise taxes.

            With the HST switchover, the sales tax on used cars between private individuals went from 8% to 13%. They grabbed the 5% the federal government gave up.

            Pretty stiff taxes on the same thing over and over.

            And when that switchover happened, didn’t Timmies get a special deal?

            1. cnchal

              They grabbed the 5% the federal government gave up.

              My mistake. They just added 5 %. The federal government only charges GST once on a vehicle.

  9. scraping_by

    This is the sort of deal gives the lie to the ‘world is flat’ neoliberal rah-rah. It’s taxation arbitrage, which could only work across a border. If there was no border, or coordinated taxation, it would be meaningless.

    It’s subsidy-sucking, just like local governments competing for Walmarts and state governments opening the tax coffers for industrial plants. The ‘free market’ response will be some wretchedly corrupt subsidy for corporate headquarters, instead of giving borders an economic meaning along with the geographic and historical meanings. Watch for it.

    The current policy of the United States is that the United States has no borders. Immigration, employment, finances, and more and more trade goods, there’s no difference between inside and outside, and so there’s increasingly no inside. Less a social theory than a chattering class meme, a borderless nation is, in practical terms, an economic colony.

  10. Gabriel

    I know the big guys have s–t in the pool – guys like Apple, etc. They have the accountants to finese the rules to the max.
    But it seems to be a very different party when the small timers are also lining up to p–s in the pool – guys like BK.
    I guess the word’s out – you can do whatever you want in the pool, unless you get caught.

  11. brian t

    Another great story making the rounds this month: AT&T is looking at acquiring Irish telecoms provider Eircom. Now, why would a big US company want to dip a toe in to Ireland ..?

  12. Kunst

    I may be totally off base here, so treat this as a sincere question. What if we eliminated the corporate income tax and taxed dividends and capital gains (above some threshold, perhaps, and maybe unrealized CGs as well) as the income it is. If we equalized revenue, or made it be what we think it should be, would this not remove the corporate tax issue (or turn it in the US’s favor) while getting the money from those who actually get the corporate profits. We would need to make sure non-US citizen owners pay too, but I’m sure that could be done fairly straightforwardly. I’m guessing political considerations make all of this impractical, but other than that, how would it change the tax equation and the overall economic picture?

    1. Dan

      Changing the taxes on non-earned income to that at least equal to earned income would be a nice start at equalizing the effects of these tax maneuvers. Also some threshold above which whenever a corporate does more than X% of all of its business in the US, taxes are levied on a pro-rated share of the parent company (to avoid transfer cost shenanigans).

  13. ChuckTurdburger

    I hear all the time how corporations have many of the same rights as people. With that in mind, here’s my thought.

    People who are citizens the US are expected to file income tax statements in the US, even if they live outside the country. This is of course a ridiculous practice, thankfully only the used by the US and Eritrea (that says it all I think). Anyway, why not apply the same logic to corporations? If the corporation was founded in the US, it doesn’t matter if it moves outside the country, it’s still taxed. Bam, problem solved.

    Admittedly, this is a simplistic take on the problem, and would undoubtedly cause a lot of headaches. But so what, the US government has no problem imposing those headaches on American citizen who move to another country.

    I know people who’ve moved their lives to Canada from the US and have been here for decades with no plans to ever return to the god forsaken country of their birth. They are still expected to file their taxes in the US, with fairly severe penalties if they dont. Best of all, Harper and the banks in canada are fully cooperating with the US on this, so they shouldn’t mind doing the same when it comes to corporations.

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