Would you like a Whopper... or maybe just a donut and a grilled Panini? The merger of U.S.-based fast food giant Burger King and Canada-based doughnut and coffee chain Tim Hortons seems like a match made in food heaven, but it’s taxes that are taking center stage of the deal.
On August 27, Burger King announced that it was purchasing Tim Hortons for roughly USD$11 billion, merging two of the largest food chains in North America. The deal, which was completed with the help of $3 billion in financing from Berkshire Hathaway, creates North America’s third-largest “quick service restaurant company,” behind McDonald’s and Yum! Brands, owners of Taco Bell and Pizza Hut.
However, the new combined company will not take over Burger King’s previous corporate headquarters in Miami. Instead, the company will be moving its headquarters to Ontario, Canada. The nominal corporate tax rate in Canada, by the way, sits at 26 percent, while the rate in the U.S. sits at 39 percent, the highest of all 34 Organization for Economic Cooperation and Development (OECD) member countries.
Burger King claims that moving the company’s headquarters is a decision not based in lower taxes. “This is not a tax-driven deal,” Alex Behring, Burger King's chairman, said to the Wall Street Journal. “It is fundamentally about growth and creating value through accelerated expansion.”
The company further said in a statement, “A key driver of these discussions is the potential to leverage Burger King's worldwide footprint and experience in global development to accelerate Tim Hortons growth in international markets.”
Burger King, though, wouldn’t be the first company to recently follow this trend, but it is one of the largest. According to data from the Congressional Research Service (CRS), 46 companies have undertaken U.S. tax inversions — changing a company’s corporate citizenship — since the beginning of 2007. That’s more than double the number of companies who completed inversions in the 25 years prior.
That’s why it’s not surprising to see Burger King experience some backlash, Senator Dick Durbin (D-Ill.) said, “I'm disappointed in Burger King's decision to renounce their American citizenship. With every new corporate inversion, the tax burden increases on the rest of us to pay what these corporations don't.”
It remains to be seen what comes of the deal, or whether Burger King will experience any regulatory issues in its path to acceptance. But one thing remains clear: The public relations battle begins now.