It may be time to let our voices be heard over at Burger King. According to Reuters, Burger King Worldwide, Inc is in talks with Tim Horton’s for a merger which would make the company a subsidiary of the Canadian company and lessen their tax responsibilities here in the United States through a process known as “corporate inversion.”
Burger King Worldwide is in talks to buy Canadian coffee and doughnut chain Tim Horton’s, according to the Wall Street Journal, in a deal that would be structured as a tax inversion to move the hamburger chain’s domicile out of the United States.
Citing people familiar with the matter, the Journal said the two companies are working on a deal to create a new holding company based in Canada and could be struck soon, although more details on the timing could not be learned. (Source)
Not too long ago, Walgreens was considering doing the same thing and moving to Switzerland to avoid about $800 million annually in taxes, despite making approximately $18 billion a year from Medicaid and Medicare alone. After a public outcry, Walgreen’s decided not to do go through with their plans, something that drew the criticism of Fox News.
Based off their financial reports, Burger King Worldwide, Inc (BKW) on the New York Stock Exchange paid $88.5 million for the year ending in 2013 off of $322.2 which comes to a little over 27%. If Burger King bought Tim Horton’s and became a Canadian company, they would be eligible for a lower tax rate under the Canadian tax codes which gives them an effective tax rate anywhere from 11% to 19%, depending on the province.
A 2014 representative tax rate for a CCPC on its first CAD$500,000 of active business income is 15.5% (an 11% federal tax component and a 4.5% provincial tax component). Depending on the province, the 2014 combined active business income tax rate ranges from 11% to 19%. (Source)
Based off my estimates (and I’m not a tax expert or an accountant), Burger King would possibly see their taxes drop in half by moving to Canada on paper, even with the current exchange rate. Basically, Burger King becomes a subsidiary of Tim Horton’s, with management remaining in the United States – and saves $30 million to $50 million annually if my estimates are correct.
This seems to be a mere fraction of what Walgreens was looking at saving and yet Burger King is willing to become a subsidiary of a company from our neighbor to the north over this small savings.
Many of you will say “so what? I don’t eat there regardless” and I get that. I rarely eat fast food due to dietary issues, but the occasional trip to Taco Bell or Burger King for a Double Whopper with cheese, no onion or bun is something I like to indulge in every once in a while. According to their website, Burger King operates about 12,000 locations internationally, with over 7,000 in the United States. Most of these locations are franchises and the company continues to shed ownership of stores as part of a cost-cutting crusade by the new CEO, Daniel Schwartz, who is trying to remake Burger King after years of disappointing sales.
While I understand the need to right a sinking ship, which Burger King has been for many years, becoming a subsidiary of a foreign company to save $30 million to $50 million and bump up the share prices for a quarter or two isn’t the right way to do it.
Since the overwhelming majority of Burger King locations are franchises owned by individuals and local companies, a boycott wouldn’t hit the corporation itself as directly as Walgreens. However, since they make 4.5% in royalties on all sales by franchise, it will still be felt if business slumps, especially since they are attempting to turn the brand around.
Contact Burger King on their website or call them directly at 1-866-394-2493 and let them know if they plan to go through with this inversion, they can also plan to lose your business as well.
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