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Originally published Monday, August 25, 2014 at 4:07 PM

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Burger King-Tim Hortons talks could turn up heat on inversions

A deal between the two fast-food giants would be one of the largest and highest-profile so-called tax inversions. A surge in inversions has led to a push by the Obama administration and some Democrats in Congress to place new limits on the tax-saving maneuver.


Los Angeles Times

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Burger King’s potential acquisition of coffee-and-doughnut chain Tim Hortons could flame-broil the already simmering debate in Washington about new limits on offshore tax shifting after the companies confirmed a new merged firm would be based in Canada.

A deal between the two fast-food giants would be one of the largest and highest-profile so-called tax inversions, in which a U.S. company buys a smaller foreign firm and moves its headquarters abroad to get lower taxes.

A foreign-based company does not have to pay U.S. taxes on its earnings in the rest of the world and also can use some internal maneuvers to further lower how much it pays to Washington each year.

A surge in inversions has led to a push by the Obama administration and some Democrats in Congress to place new limits on the maneuver.

So far, the deals have been focused in the pharmaceutical industry. A possible deal involving a well-known consumer brand such as Burger King could add to the pressure on Congress to act to place new limits on tax-shifting deals.

Burger King is based in Miami, and its earnings are subject to the 35 percent federal corporate tax rate in the U.S., the highest among developed nations. Tim Hortons is based in Ontario, where the federal corporate tax rate is 15 percent.

Like many countries, Canada has lowered its rate in recent years to be more business-friendly.

The rate was 22.1 percent in 2006, when the Canadian government began a gradual reduction that ended in 2012 with the lowest corporate rate of any of the so-called Group of Seven advanced Western economies.

Combined with local and state taxes, Canada’s corporate tax rate is 26.3 percent, according to the Organization for Economic Cooperation and Development. The combined U.S. corporate rate is 39.1 percent.

Many U.S. companies use various tax maneuvers, including sheltering some foreign earnings abroad, to pay less than the full rate. Burger King’s overall effective tax rate in 2013 was 27.5 percent, according to its annual report.

In a statement Sunday, the two companies said they were in merger discussions and that a “new publicly-listed company would be headquartered in Canada, the largest market of the combined company.”

Burger King has more than 13,000 locations in 98 countries. Tim Hortons has 4,546 restaurants, with 3,630 in Canada. It has 866 U.S. locations.

The pace of inversions has picked up significantly in recent years.

Last month, Illinois drugmaker AbbVie announced one when it agreed to buy European rival Shire and locate the new company on the British island of Jersey, a well-known tax haven that has a 0 percent standard corporate tax rate.

The deal, one of the largest inversions so far, sparked outrage among some lawmakers.

In his fiscal 2015 budget, President Obama proposed toughening the rules on inversions by requiring a company to have at least 50 percent foreign ownership instead of the current 20 percent in order to be considered foreign for U.S. tax purposes.

In July, Treasury Secretary Jack Lew wrote to congressional tax writers and urged them to act quickly to limit inversions. He called on U.S. companies to have a sense of “economic patriotism” and not try to avoid paying their fair share of taxes.

House and Senate bills have been introduced based on Obama’s proposal. A House bill, sponsored by Rep. Sander Levin, D-Mich., would generate an additional $19.5 billion in tax revenue over the next 10 years by making inversions more difficult.

Democrats and Republicans would prefer to address inversions as part of a broader overhaul of the U.S. tax system.



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