Business mergers and acquisitions happen almost every day in countries the world over, oftentimes happening without so much as a tweet on Twitter. But a recent merger between Burger King Worldwide Inc. and Tim Hortons is grabbing national attention this month and raising concerns about why the two restaurants decided to join forces.
According to reports, Burger King has purchased the coffee-and-doughnut restaurant chain for $11.4 billion, making the yet-to-be-named firm the third largest fast-food chain. And although Burger King’s and Tim Horton’s headquarters will stay where they are, in Florida and Canada respectively, the firm’s new headquarters will be located in Canada, which is where much of the concern stems from.
It is rumored that Canada was chosen as the country for the new headquarters because of the lower tax rate for corporations. Compared to the United States, where the corporate tax rate is a staggering 35 percent, the lower Canadian corporate tax rate will save Burger King money in the long run. But some critics feel that this is just another case of tax inversion.
For those who do not know, tax inversion is a practice in which one company “relocate[s] its legal address to a foreign country” in order to avoid paying higher taxes. It’s become a huge problem here in the United States and Burger King’s most recent move may have been the proverbial straw that broke the camel’s back.
According to reports, state representatives have already started asking Congress to act quickly on the issue of offshoring before more companies take advantage of what is being called a clear loophole in U.S. tax law. Some have even proposed legislation that would make it harder for businesses to move their corporate headquarters to other countries by “chang[ing] the foreign ownership threshold from 20 percent to 50 percent.”
But because new laws have not been put in place yet, it’s unknown if the merger can be stopped at this time.
Sources: The Los Angeles Times, “Burger King swallows Tim Hortons; new firm is Canada-bound,” Jim Puzzanghera, Aug 26, 2014
The Globe and Mail, “Explainer: What is tax inversion and what does it have to do with doughnuts?” Aug. 26, 2014