4 perspectives on Burger King's move to Canada

Corporate tax inversions aren't just for drug companies anymore

Burger King
(Image credit: (REUTERS/Brendan McDermid))

Corporate tax inversions aren't just for drug companies anymore, said Jon Healey at the Los Angeles Times. Though the past few months have seen a flurry of such deals, in which U.S. companies acquire smaller foreign targets to move their headquarters overseas and reduce their tax bills, the practice has mainly been limited to pharmaceutical firms. But last week's announcement that Miami-based Burger King would buy Canadian coffee-and-doughnut chain Tim Hortons for $11 billion and move north of the border shows "the maneuver is spreading to more corners of the business world." That's no surprise; U.S. companies are subject to a 35 percent corporate tax rate, the highest in the world, and the U.S. "is the only country to tax income earned outside its borders."

But the Tim Hortons deal isn't really about taxes, said Devin Leonard and Venessa Wong at BloombergBusinessweek. Though Canada's corporate tax rate is lower than ours, at about 26 percent, moving north won't translate into huge savings for the burger chain, which already pays an effective tax rate in the U.S. of just 27 percent. "It's easier to understand Burger King's motivation if you know something about 3G," the Brazilian private equity firm that bought Burger King in 2010. The people at 3G aren't restaurateurs — they're bankers, and their deals are "designed to keep Wall Street happy." So far, that has meant an aggressive expansion strategy, predicated on "new outlets in places like China, Russia, and Brazil." But that growth can go only so far with a single brand, and the 3G bosses were "surely planning to purchase more fast-food chains from the start." Enter Tim Hortons, with all its expansion potential.

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