Burger King Wants to Buy Tim Hortons, Move to Canada, and Stop Paying U.S. Corporate Taxes

A blog about business and economics.
Aug. 25 2014 12:54 PM

Burger King Wants to Buy Tim Hortons, Move to Canada, and Stop Paying U.S. Corporate Taxes

82504247-burger-king-whopper-jr-meal-sits-on-a-tray-at-a-burger
Poutine instead of fries?

Photo by Justin Sullivan/Getty Images

On Sunday, the Wall Street Journal reported that Burger King is in discussions to buy Tim Hortons—Canada’s much-beloved answer to Dunkin’ Donuts—and move its official headquarters north of the border, a so-called tax inversion deal that would let it avoid paying high U.S. corporate rates.

Jordan Weissmann Jordan Weissmann

Jordan Weissmann is Slate's senior business and economics correspondent.

U.S. corporate taxes are high, and it's anything but a shock that companies would go to extreme lengths to avoid them. But inversions—in which a U.S. company buys a smaller foreign corporation, then essentially moves its home address abroad for tax purposes—have been the subject of continuous outrage in Washington this spring and summer as the deals have grown more common. President Obama has slammed self-deporting businesses as “corporate desertersthat are “not doing right by the country and by the American people.” He's called on Congress to fix the tax code in order to make these mergers more difficult. But because nobody really expects Capitol Hill to act—Republicans only want to deal with inversions as part of more comprehensive tax reform—the Treasury is considering unilateral measures meant to limit them.

Advertisement

If a well-known consumer brand like Burger King actually ditches its citizenship, it’ll add some fuel to the fire. But beyond the political implications, it’ll be fascinating to see how diners respond.

As the New York Times notes, the recent spate of inversions has mostly involved pharmaceutical companies, such as AbbVie and Mylan. Pfizer may still be pursuing such a deal with Britain’s AstraZeneca after its first attempt failed. For drug companies, these deals make perfect sense: Most aren’t household names, and in the end people aren’t going to boycott the medication they need because they sense a company lacks the requisite degree of economic patriotism. But a burger chain? Americans have no shortage of places where they can fill up on starch and grease. Pharmacy chain Walgreens abandoned its own plan to invert, partly out of fear that customers would revolt. It’s a little surprising that Burger King, a perennial also-ran behind McDonald’s, would take the same risk. But it will be an interesting test of how much the American public really cares about this sort of thing.

For what it’s worth, the tie-up might not entirely be about avoiding the IRS. The combined chain may not even save that much on its tax bill, according to the Times’ sources:

The American corporate tax rate is about 35 percent, while Canada’s is about 15 percent. But people briefed on the deal negotiations said that the main driver in the talks was not taxes. Burger King already pays a tax rate of roughly 27 percent, and would shave off only a couple of percentage points by moving to Canada, according to the people briefed on the matter.

Another point of attraction for Burger King is that Tim Hortons is pretty much synonymous with coffee in Canada—and coffee is an area Burger King has had trouble breaking into. In 2006, the last number I could turn up, Tim Hortons had 62 percent of Canada's java market, compared with 7 percent for Starbucks. With around 4,500 locations worldwide, Tim Hortons has a market cap of $8.4 billion, according to the WSJ. Burger King, despite having 13,000 restaurants around the globe, is worth about $9.6 billion.

Canada's regulators, according to the Times, have the power to “block a merger if it is deemed to not be in the best interests of the country.” Many Canadians might feel some nationalist pride about any American co-opting of their favorite doughnut shop, which is so Canadian that it was co-founded by a former hockey player. (Then again, Tim Hortons has answered to American overlords before: Wendy's bought it back in 1995; the companies divorced in 2006.)

Making the combined company Canadian, at least on paper, may placate those patriotic concerns—at least for the Tim Hortons half of the equation. As for Burger King: If this deal happens, I wouldn’t be surprised if McDonald’s ads started featuring a few more American flags.

Jordan Weissmann is Slate's senior business and economics correspondent.

TODAY IN SLATE

Politics

The Democrats’ War at Home

How can the president’s party defend itself from the president’s foreign policy blunders?

Congress’ Public Shaming of the Secret Service Was Political Grandstanding at Its Best

Michigan’s Tradition of Football “Toughness” Needs to Go—Starting With Coach Hoke

A Plentiful, Renewable Resource That America Keeps Overlooking

Animal manure.

Windows 8 Was So Bad That Microsoft Will Skip Straight to Windows 10

Politics

Cringing. Ducking. Mumbling.

How GOP candidates react whenever someone brings up reproductive rights or gay marriage.

Building a Better Workplace

You Deserve a Pre-cation

The smartest job perk you’ve never heard of.

Hasbro Is Cracking Down on Scrabble Players Who Turn Its Official Word List Into Popular Apps

Florida State’s New President Is Underqualified and Mistrusted. He Just Might Save the University.

  News & Politics
Politics
Sept. 30 2014 9:33 PM Political Theater With a Purpose Darrell Issa’s public shaming of the head of the Secret Service was congressional grandstanding at its best.
  Business
Moneybox
Oct. 1 2014 8:34 AM Going Private To undertake a massively ambitious energy project, you don’t need the government anymore.
  Life
The Eye
Oct. 1 2014 9:26 AM These Lego Masterpieces Capture the Fear and Humor of the “Dark” Side
  Double X
The XX Factor
Sept. 30 2014 12:34 PM Parents, Get Your Teenage Daughters the IUD
  Slate Plus
Behind the Scenes
Sept. 30 2014 3:21 PM Meet Jordan Weissmann Five questions with Slate’s senior business and economics correspondent.
  Arts
Brow Beat
Oct. 1 2014 8:46 AM The Vintage eBay Find I Wore to My Sentencing
  Technology
Future Tense
Sept. 30 2014 7:00 PM There’s Going to Be a Live-Action Tetris Movie for Some Reason
  Health & Science
Bad Astronomy
Oct. 1 2014 7:30 AM Say Hello to Our Quasi-Moon, 2014 OL339
  Sports
Sports Nut
Sept. 30 2014 5:54 PM Goodbye, Tough Guy It’s time for Michigan to fire its toughness-obsessed coach, Brady Hoke.