The world’s third-largest fast food chain is just a signature away from reality.
Burger King Worldwide, Inc. announced on Tuesday that it has made a deal to buy popular Canadian coffee chain Tim Hortons for a cool $11 billion. The decision to move the combined corporate headquarters to Canada, however, has left some questioning whether or not this is simply a tax-dodge masquerading as a corporate merger.
Predictably, the left is having a complete meltdown over the move, forcing Burger King to go on offense to defend their business decisions.
Via USA Today:
Burger King CEO Daniel Schwartz, who will become group CEO of the new company and handle day-to-day management, said that “the company is going to continue to be managed out of our Miami office.” “We are going to continue to pay U.S. taxes as we have been doing,” he said in a conference call with media after the deal’s announcement.The deal was not about taxes, Schwartz said, noting that the corporate tax rate paid by Tim Hortons in Canada is in the mid-20s percentage-wise and Burger King’s “blended” tax rate it pays globally, including U.S. taxes, is also in the mid-20s. “So when we look at the combined company we don’t expect there to be meaningful lower or higher tax rates than we had before,” he said.Instead, he said, “What is going to add value and drive growth for the long run is … more restaurants around the world and growing sales and profits.”
Twitter exploded this week with a resurgence of the “#BoycottBurgerKing” hashtag, prompting some scathing (and in some cases downright amusing) posts from the left:
Good to know.
Won’t somebody think of the chicken fries?!
More like flame broiled, amirite?!
The problem with the outrage (aside from its anti-capitalist, entitled roots,) is that its proponents are completely divorced from the reality of how Burger King runs its business. Burger King is a fast food chain that derives most of its revenue via its franchisees. Most of those franchises are located in the U.S. which means…wait for it…that they’ll still be paying the U.S. corporate tax rate.
Not that that matters, as far as the left is concerned. The fact that this merger was most likely motivated by the potential for growth opportunities, as opposed to about a 1% drop in overall effective tax rate, may be forever lost in the shuffle:
If being based in Canada is more favorable, from a tax perspective, one might expect Tim Hortons to have a lower effective tax rate than Burger King. But, in fact, the individual companies have similar effective tax rates, of about twenty-seven per cent. Also, the tax inversions that the government is trying to avoid tend to involve large companies acquiring much smaller foreign ones, largely for the tax benefit of moving their headquarters. But while Americans might assume that Burger King is much larger than Tim Hortons, it’s not. Before news of the talks emerged, Tim Hortons was worth about eight billion dollars and Burger King around nine billion dollars; the combined company will do a significant portion of its business in Canada.
According to the USA Today story mentioned above, following the merger announcement Tim Hortons stock soared, while Burger King’s fell by just over 4%. Burger King, however, is already out in front of the potential boycott, and has yet to back down from its argument that this business decision is both legal, and financially smart.
But even if Burger King was motivated by corporate tax concerns, why blame the company? At 39%, the United States imposes the highest corporate tax rate in the world, and Democrats in Washington have a plan in the works to advocate for a global minimum tax rate. This would prevent companies from moving their operations to tax havens, and ensure that the federal government continues to reap the benefits of increased rates.
At the end of the day, progressives are concerned about control: control over tax revenue, control over corporate organization, and control over the way Americans perceive smart capitalism. They’re willing to trade long-term growth that would benefit the shareholders of two major corporations for short-term political gain, even if that means standing behind attempts to sink an incredibly successful, lucrative corporate brand.
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