The Wall Street Journal reported Sunday evening that Burger King is seeking to buy Tim Horton’s, the Canadian coffee and donut chain, to lower its U.S. tax bill.
You may be wondering, how does Burger King reduce its tax liability by purchasing a Canadian fast food company? The answer is that the deal is structured as a “tax inversion” which allows Burger King to switch its official tax jurisdiction from the United States, where the federal corporate tax rate is 35 percent, to Canada, where it is 15 percent. Presto! Burger King’s tax bill is suddenly much lower.
If it sounds ridiculous that an American company can purchase a foreign firm and suddenly avoid the U.S. corporate tax system, that’s because it is. Under current U.S. tax law, if the American company transfers 20 percent or more of its shares to the foreign firm, it can switch its official tax jurisdiction. It doesn’t matter that the vast majority of the shareholders are still American. Or that the management and control of the company remains in the U.S. Or that in making the deal, nothing about the company actually changes. You would still be able to grab a Whopper for lunch. Its thousands of American workers will all still have their jobs. But Burger King will have opted out of the U.S. corporate tax system.
Meanwhile, Forbes reported three days ago on the prospective merger and said:
Burger King’s majority owner, the Brazilian private-equity firm 3G Capital, would hold the majority of shares in the combined company, their statement said.
These Brazilians need to get patriotic and pay their absurdly high American tax rates.
P.S. The tax inversion is being funded by noted high-tax proponent and hypocrite Warren Buffett.