You may remember that earlier this year, Walgreens tried to move its corporate citizenship to Switzerland as part of its buyout of Swiss pharmacy chain Alliance Boots–a move that would have cut its tax rate by 11 percent. This practice is known as “tax inversion,” where a company moves its nominal headquarters to a nation with a lower tax rate while maintaining most of its operations in its country of origin. Walgreens ultimately announced it would stay in its longtime home near Chicago–but only after widespread criticism from both public opinion and lawmakers. Well, Burger King seems to have missed that memo. On Wednesday, it formally announced that it is acquiring Canadian doughnut-store chain Tim Hortons. While Burger King will be the nominal survivor, the merged company will be incorporated in Canada and based at Tim Hortons’ current headquarters in Oakville, Ontario; a suburb of Toronto. However, the Burger King half of the operation will still be operated in Miami.
Several sources close to the talks told The New York Times that Burger King won’t get nearly as large a tax windfall as Walgreens would have gotten had it gone through with the planned move to Switzerland. According to those sources, Burger King’s tax rate is about 27 percent, and if the merger goes through that rate would drop to around 25 percent. Burger King’s stated reason for moving is that the merged company’s biggest market will be in Canada, so it makes sense to have its headquarters there. Still, to put it mildly, the timing of this deal couldn’t have been worse. Apparently nobody at Burger King headquarters in Miami was reading about the criticism of the Walgreens deal that reached as far as the White House. Indeed, the Treasury Department is already looking at taking a tougher stance on inversions, and has already identified ways to block them that don’t require congressional action. The White House has also asked Congress to change the tax code so that a company would have to be 50 percent foreign-owned to be considered a foreign company for American tax purposes. Current tax law allows a company to be considered foreign if it is 20 percent foreign-owned.
From the looks of it, Burger King opened itself up to a whopping amount of criticism regardless of where it would have based itself after the merger (and yes, the pun was intended). Tim Hortons is considered a Canadian icon; its ads are a familiar sight on NHL games hosted in Canada. The Investment Canada Act gives Ottawa broad powers to block any merger that is seen as harming the national interest. Had the merged company been headquartered in the United States, Canadian Prime Minister Stephen Harper and his government would have been all but forced to invoke the act and block the merger. Otherwise, Harper might as well have handed the prime minister’s chair to Liberal leader Justin Trudeau on a platter; polling strongly indicates that Canadians are on the verge of firing Harper in the election due next year. But even the fact that the merged company will nominally be based in Canada may not be enough to appease Canadian public opinion. CBC News asked its viewers to weigh in on the merger, and the response was mostly negative. Many respondents felt that regardless of where the headquarters were and assurances that Tim Hortons will continue to be operated in Oakville, it would still amount to an American company swallowing a symbol of Canada.
If the CBC response is any indication, it’s a safe bet that there will be pressure on both sides of the border to deep-six this deal. And that will be a good thing.
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Darrell Lucus, also known as Christian Dem in NC on Daily Kos, is a radical-lefty Jesus-lover who has been blogging for change for a decade. Follow him on Twitter @DarrellLucus or connect with him on Facebook.
