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Burger King, Tim Hortons talks could turn up heat on tax inversions

A Burger King sign and a Tim Hortons sign are displayed Monday in Ottawa. Burger King is in talks to buy Tim Hortons in hopes of creating a new, publicly traded company with its headquarters in Canada.

Associated Press

A Burger King sign and a Tim Hortons sign are displayed Monday in Ottawa. Burger King is in talks to buy Tim Hortons in hopes of creating a new, publicly traded company with its headquarters in Canada.

Burger King Worldwide's potential acquisition of coffee-and-doughnut chain Tim Hortons could flame-broil the already simmering debate in Washington about new limits on offshore tax shifting after the companies confirmed a new merged firm would be based in Canada.

A deal between the fast-food giants would be one of the largest and highest-profile so-called tax inversions, in which a U.S. company buys a smaller foreign firm and moves its headquarters abroad to get lower taxes.

A foreign-based company does not have to pay U.S. taxes on its earnings in the rest of the world and can use some internal maneuvers to further lower how much it pays to Washington each year.

A surge in inversions has led to a push by the Obama administration and some Democrats in Congress to place new limits on the maneuver.

So far, the deals have been focused on the pharmaceutical industry. A possible deal involving a well-known consumer brand like Burger King could add to the pressure on Congress to act to place new limits on tax-shifting deals.

Burger King is based in Miami, and its earnings are subject to the 35 percent federal corporate tax rate in the U.S., the highest among developed nations. Tim Hortons is based in Ontario, where Canada's federal corporate tax rate is 15 percent.

Like many countries, Canada has lowered its rate in recent years to be more business-friendly. Combined with local and state taxes, Canada's corporate tax rate is 26.3 percent, according to the Organization for Economic Cooperation and Development. The combined U.S. corporate rate is 39.1 percent.

Many U.S. companies use various tax maneuvers, including sheltering some foreign earnings abroad, to pay less than the full rate. Burger King's overall effective tax rate in 2013 was 27.5 percent, according to its annual report.

In a statement Sunday, the two companies said they were in merger discussions and that a "new publicly listed company would be headquartered in Canada, the largest market of the combined company."

The pace of inversions has picked up significantly in recent years.

In his fiscal 2015 budget, President Barack Obama proposed toughening the rules on inversions by requiring a company to have at least 50 percent foreign ownership instead of the current 20 percent in order to be considered foreign for U.S. tax purposes.

In July, Treasury Secretary Jacob J. Lew wrote to congressional tax writers and urged them to act quickly to limit inversions. He called on U.S. companies to have a sense of "economic patriotism" and not try to avoid paying their fair share of taxes.

House and Senate bills have been introduced based on Obama's proposal. A House bill, sponsored by Rep. Sander M. Levin, D-Mich., would generate an additional $19.5 billion in tax revenue over the next 10 years by making inversions more difficult.

.FAST FACTS

The players

Here's a look at Burger King and Tim Hortons, which are in talks to merge.

Burger King

Established: 1954

Headquarters: Miami

Market capitalization: $11.03 billion, according to FactSet.

More than 13,000 restaurants in 98 countries and territories globally.

Tim Hortons

Established: 1964

Headquarters: Ontario

Market capitalization: $10.96 billion, according to FactSet.

More than 4,500 restaurants, including 3,630 in Canada, 866 in the U.S. and 50 in the Persian Gulf area.

Known for its doughnuts and coffee, restaurants also sell fruit smoothies, sandwiches, soup, chili, paninis, wraps and baked goods.

Associated Press

Burger King, Tim Hortons talks could turn up heat on tax inversions 08/25/14 [Last modified: Monday, August 25, 2014 7:17pm]

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