"...[W]hen a company reincorporates abroad, as the practice is known, what it's really doing is shifting its corporate citizenship; and when a company shifts its corporate citizenship, what it's really doing is trying to pay less in taxes. The effective corporate tax rate in the U.S., which combines national, state, and city-level tax rates, is nearly 40 percent—the highest across all 34 Organization for Economic Cooperation and Development (OECD) member countries. Canada's, by comparison, is just over 26 percent.CBC - Corporate tax evasion 'crackdown' more bark than bite: "Global efforts to stop companies from eroding tax base by moving profits offshore have no teeth, experts say"
Burger King would hardly be the first large American corporation to move its headquarters—more than 70 U.S. companies have reincorporated overseas since the early 1980s. The practice has been especially popular lately—more than half of those inversions have come since 2003, or almost double the amount that did in the twenty years prior, according to data from Congressional Research Service (CRS).
The increasing popularity of tax inversions has prompted discussions about how to close--or at the very least thwart--the sort of loopholes that allow tax flight in the first place. President Barack Obama has expressed concerns about the practice and its imminent growth. "We don't want to see this trend grow," he said at a news conference earlier this month. And the Treasury Department is already working to assemble a list of ways to help curb the maneuver.
A Burger King reincorporation, however, would be different from most of those that would have preceded it. The Miami-based burger slinger would be one of the most visible to move overseas, at least in the eyes of the American consumers. The vast majority of corporate headquarter hauls have been executed by pharmaceutical companies, whose brand equity is far less important to sales. Burger King's business, by comparison, stands to be more significantly impacted if there is any public backlash.
It’s clear what’s driving Burger King to pursue this deal. But there’s been far less attention paid to the question: what’s in this for Tim Hortons? According to Tim Hortons, the answer—as it unceasingly has been for the past two decades—is the pursuit of international growth... Whether Burger King will have any more success delivering on that promise than Wendy’s did will be the question hanging over the new company. There is little question that in its current form, Tim Hortons has hit a wall. Its U.S. expansion has been an enduring disappointment... But Tim Hortons’ biggest challenge arguably isn’t its failed U.S. expansion. It’s that the market at home is tapped out. Were it not for opening scores of new stores every year, Tim Hortons growth in Canada would be paltry.Canadian Centre for Policy Alternatives - Tim’s + BK = $ for Canada right? …. Wrong!
But the loss of US taxes from BK is Canada’s benefit right? Turns out, not so much. The only reason why this particular accounting trick works is because American corporations are taxed on worldwide profits, Canadian companies (and most other countries companies) are not. What that means is that American corps pay the American government taxes on all their profits no matter which country they are made in. Canadian companies only pay the Canadian government on profits made in Canada.CBC - Tim Hortons, Burger King agree to merger deal
So the BK move to Canada would mean that BK will stop paying taxes on profits it makes in Kuwait to the US government. However, since no Canadian company pays taxes on profits made in Kuwait in any event, Canadian governments would bring in no additional revenues. In BK’s case, this would save them in the neighbourhood of $12 million a year in US corporate taxes. Of course, Canada sees none of that money and essentially gains nothing from this deal.
In the end, many corporations want to pay $0 in income taxes and have the rest of us pick up the tab for health care and infrastructure that we all benefit from. “Tax inversion” is just one of the many accounting tricks that makes regular people pick up the tab for corporations that abuse tax rules or lobby governments to pay less and less every year.
Whatever the reasons for the deal, and the move, Burger King will have a lot of work to do in trying to expand Tim Hortons beyond Canada. In a May post about Tim Hortons’ failure to gain traction in the U.S., Paul Hiebert wrote about one ill-fated marketing campaign: "In the mid-aughts, Tim Hortons attempted to appeal to American curiosity with an ad campaign known as 15 Million Canadians—a number meant to imply that about half of Canada’s population visits a Tim Hortons each week, according to the company... The ads, however, did little to entice. “We did try the Canadian angle, and it failed, because Americans showed zero interest in what Canadians like,” Brynn Burton, a spokeswoman, said."
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