by Dish Staff
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.
Jordan Weissmann differs:
[T]he idea that Burger King won’t really get any tax advantages out of relocating to Canada, where the corporate rate is about 15 percent compared with 35 percent in the U.S., seems transparently untrue.
Yes, it will continue paying American corporate rates on its U.S. profits, just like any other foreign company. But Canadian citizenship will likely give it more opportunities to use various accounting and business tricks to shift profits north of the border and out of the reach of the IRS (multinationals with foreign subsidiaries excel at that sort of thing).
However, McArdle sees “not much of an argument for global taxation”:
OK, yes, most people born and raised here were educated and provided various services by the government to get them to adulthood. But we’re overwhelmingly the largest net recipient of immigrants, and most of those people were educated and provided various services by their governments to get them to adulthood; we don’t seem to think there’s a problem with us free-riding on all those other nations. And surely there’s a statute of limitation on what you owe the government that raised you; 40 years later, should those expats still have to file insanely complicated returns to the IRS? Because that’s what we currently demand.
The argument is even weaker for corporate taxation; it boils down to “the police kept people from sacking your first headquarters, so therefore you owe us 35 percent of everything you make, forever.” Loan sharks and protection rackets offer more reasonable terms than this.
Barro weighs in:
As Matt Levine of Bloomberg notes, proposed legislation to prevent corporate inversions would not be likely to interfere with a Tim Hortons-Burger King merger, because this deal would pass the test those laws require: that the company is really, substantively shifting the locus of its operations outside the United States for reasons beyond taxes. We can change the tax code, but we can’t prevent an American fast-food company from going global.