Burger King may have found the way to have it their way catch up with McDonald’s lower its tax rate.
Miami-based Burger King has announced it will acquire Canadian doughnuts and coffee staple Tim Horton’s for $11.4 billion, USA Today reports. The deal will create the world’s third-largest fast-food company, with about $23 billion in annual sales and more than 18,000 restaurants in 100 countries.
The new global company will be headquartered in Canada, but each brand will be managed independently, with Burger King retaining its U.S. offices in Miami, the two companies said in a joint statement.
Since there will be a new base in Canada, the newest merger quickly was lumped into the growing public outcry over tax inversions, which allow U.S. companies to lower their tax bills by reincorporating in a country with lower corporate tax rates through a merger with a foreign firm. By midday, Burger King’s Facebook page had been hit with thousands of messages. On Twitter, #TimHortons was a trending topic with #BoycottBurgerKing and similar tweets numbering in the hundreds.
Burger King CEO Daniel Schwartz, who will assume the CEO role for the combined company and run the day-to-day operations, says the that “the company is going to continue to be managed out of our Miami office.” “We are going to continue to pay U.S. taxes as we have been doing,” he said in a conference call with media after the deal’s announcement.
As far as the tax structure, Schwartz said both companies pay approximately the same tax percentages, in the mid-20 percents, “so when we look at the combined company we don’t expect there to be meaningful lower or higher tax rates than we had before,” he said.
Fortune is reporting, however, that Burger King may still move its tax base. The corporation could take all its U.S.-based restaurants and make the home office for them the Tim Horton’s headquarters in Canada, making any monies exempt from U.S. taxes, essentially assigning them a new ‘parent’ company. Though companies in the past have shied away from this due to negative publicity, Burger King may just start a new trend.
While this tax inversion is legal, finding a way to skip out of paying those taxes, in the minds of some, is incorrect. Even before the Burger King deal was announced, the Congressional Joint Committee on Taxation estimated that the potential tax revenue the Treasury would lose to tax inversions over the next 10 years could amount to $19.5 billion. If not stopped soon, lost tax revenue from tax inversions may mount much higher. The country faces an urgent need to stop corporate inversions. This is one tax loophole that Congress should move quickly to close.