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Burger King May Leave U.S. and Dodge Paying Taxes

In a whopper of an announcement, the fast food giant says its new home may become Canada.
 
 
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A Burger King storefront in Beijing, China.
Photo Credit: Shutterstock

 

Iconic fast-food chain Burger King is seeking to merge with Tim Horton’s, the Canadian doughnut and coffee retailer, according to a report in today’s New York Times. But what’s notable about the merger, which may be finalized within days, is that the union with Tim Horton’s could make Burger King a de facto Canadian company, allowing them to skip out on paying U.S. corporate taxes in favor of Canada’s much lower rate.

The American corporate tax rate is about 35% before deductions, while Canada’s is 15%. Burger King reportedly pays around 27% of its profits to taxes.

Some industry analysts say, however, that the lower tax right might not be the reason behind the deal. It’s been noted that Burger King has been seeking a partner franchise to help with its morning offerings. Rival McDonald’s has reinvented itself as a morning coffee shop in addition to being a fast-food burger chain.

Burger King is the six largest fast-food chain in the world, behind McDonald’s, Subway, KFC, Pizza Hut, and Starbucks. Horton’s, which is mostly found in Canada and northern U.S. States, is not in the top ten. But together, the new company would become the third largest fast-food retailer.

According to the Wall Street Journal, a move to Canada would make the possible deal easier to digest for Canadian financial regulators, and may not hinge upon the lower tax rate. However, it is not uncommon for corporations to move their headquarters, or that of a subsidiary, to other countries to reduce their tax burden. Apple has taken advantage of numerous loopholes and tax havens in countries such as Ireland, where it set up a network of holding companies to route some 64% of its corporate profits (all from foreign sales) without paying taxes anywhere. Last year, a U.S. Senate investigation revealed that Apple set up a complex corporate shell game allowing it to reel in $44 billion in offshore income without paying a dime in taxes.

A shift to out-of-the-country operations is known as a tax inversion, and it has become very popular among U.S. corporations seeking to lower their tax burden. It has also become a political hot-button issue. In a tax inversion, a U.S.-based corporation buys or merges with an overseas corporation and takes on its identity. The practice also allows corporations to send profits earned overseas to the parent company in a foreign country without paying U.S. taxes on them.

A recent study by the auditing giant KPMG shows that the total tax cost to businesses are nearly 50% less in Canada than they are in the U.S. But, it should be noted that most corporations don’t pay anywhere near 35% in taxes in the U.S. Multinational corporations pay, on average a little more than 12%, according to the Government Accounting Office.

Burger King, which was founded in Miami in 1954, is the second largest hamburger chain behind McDonald’s with 13,000 locations. Tim Horton’s was founded in Ontario by the hockey legend Tim Horton in 1964. He died in a car accident a decade later.

The American fast-food chain Wendy’s acquired Tim Horton’s in 1989, but was forced to spin it off a year later after being pressured by hedge-fund managers with a large stake in the corporation.

Cliff Weathers is a senior editor at AlterNet, covering environmental and consumer issues. He is a former deputy editor at Consumer Reports. His work has also appeared in Salon, Car and Driver, Playboy, and Detroit Monthly among other publications. Follow him on Twitter @cliffweathers and on Facebook.

 
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