James F. McDonough
December 17, 2014
As was widely reported a few months ago, Burger King is expected to complete a corporate inversion by purchasing Canadian donut company Tim Horton.
Spinning both companies into subsidiaries of a new, multinational fast-food company headquartered in Canada. New numbers released by tax watchdog Americans for Tax Fairness showed just how much Burger King will be saving after this move.
According to the report, the chain is already using aggressive tax planning
to keep its bills as low as possible. As a result, its worldwide tax rate is one of the lowest of any U.S. fast food company at 27.5 percent in 2013. By structuring its international activities around low tax countries and loading costs onto U.S. operations, for example, the company is able to minimize its taxable income in America.
One example of the way that many companies do this is by moving the ownership of brands and logos to a subsidiary in a low tax region
and then charging exorbitant rates to “arm’s length” subsidiaries in higher tax regions. This makes it appear that high tax subsidiaries are making little profit while low tax subsidiaries are making a lot.
The report looked into ways that Burger King could use its new status as a Canadian resident to avoid paying what would otherwise be U.S. taxes. It found that the company could avoid paying taxes on its current sum of $499 million in offshore profits – otherwise taxable under the U.S. “worldwide” tax scheme – to save $117. On future foreign earnings, this same change would save the company an estimated $275 million between 2015 and 2018. It also found that the top three holders of Burger King stock could use the unique structure of this deal to save on U.S. capital gains tax. The amount saved could be anywhere between $10 million and $820 million.