Burger King's tax avoidance merger
Fast food chain Burger King is the latest US company to be embroiled in the tax avoidance debate.
The Dirt Diggers digest has reported the company is about to attempt an "inversion", a tactic of tax avoidance that is becoming prevalent in corporate America.
Burger King is proposing to merge with the smaller Canadian doughnut and coffee chain Tim Hortons and register the combined company in Canada, where it would be able to take advantage of lower tax rates on its U.S. revenues.
Tim Horton’s, Canada’s largest coffee-shop chain, has a market capitalisation of about $8.4 billion, while Burger King’s market capitalisation is about $9.6 billion; the proposed merger would form a new entity worth about $18 billion.
A tax inversion occurs when an American company merges with a foreign one and, in the process, reincorporates abroad, effectively entering tax regime outside the US. An American company that merges with a Canadian target company for share consideration can avoid U.S. residency for tax purposes as long as the shareholders of the Canadian target end up owning at least 20% of the shares of the new parent immediately after the acquisition.
Canada’s corporate tax rate in Ontario of 26.5% (the federal rate of 15% plus Ontario’s provincial corporate tax rate of 11.5%) is considerably favourable to the American corporate tax rate of 35% thanks in large part to the conservative Canadian government led by Stephen Harper.
According to Forbes a recent KPMG Report, Focus on Tax, ranked Canada as the #1 country with the most business-friendly tax structure among developed countries (the UK was second).
According to the Independent, the announcement was met with criticism by Burger King fans on social media, where customers threatened to boycott the chain if the merger goes ahead.
One user wrote on Burger King's Facebook page: "If you attempt to buy Tim Horton's for the purposes of evading US Taxes, I will NEVER step foot in another Burger King again...Don't do it"
Another customer added: "Done eating at BK if you become a tax cheat you can count my family of seven as former customers."
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