A whopper of a deal at taxpayers’ expense
Burger King Chief Executive Officer Daniel Schwartz swears that the company’s plan to renounce its U.S. “citizenship” and become a Canadian corporation “is really not about taxes.” But a new report by my group, Americans for Tax Fairness, finds that it really is about taxes after all.
The report reveals that Burger King’s recent merger with Tim Hortons, a Canadian restaurant chain, would allow the corporation and its leading shareholders to dodge an estimated $400 million to $1.2 billion in U.S. taxes between 2015 and 2018. That’s a whopper of a deal for Burger King — but American taxpayers will be forced to pick up the tab.
Burger King has structured the deal as a corporate inversion. Burger King is buying a smaller Canadian company, but then becoming a subsidiary of a new post-merger Canadian firm. This convoluted structure is designed to be a tax dodge, with several selections on the menu.
The deal will allow Burger King to avoid paying taxes on the $499 million in profits it earned offshore while it was an American corporation and on which it has not yet paid U.S. taxes. This part of the tax dodge is worth an estimated $117 million.
The biggest tax breaks will occur in the future, when Burger King will never have to pay Canadian taxes on profits earned anywhere else in the world. Unlike in America, Canada does not tax profits a company earns overseas, whether in a tax haven or not. This will let Burger King avoid as much as $275 million in U.S. taxes from 2015 to 2018 alone.
Finally, Burger King’s largest shareholders could get as much as $820 million in capital-gains tax breaks under the deal. Sixty-nine percent of the company is owned by 3G Capital, a private equity firm founded by three Brazilian billionaires and incorporated in the Cayman Islands, a notorious tax haven. The Burger King deal likely will generate more than $5 billion in capital gains for these and other shareholders. Shareholders who are U.S. residents likely will pay nothing, when they normally would pay at least 15 percent in U.S. capital gains taxes. And the billionaire owners, who effectively control the company, normally could be liable to pay capital gains taxes, but they too appear to be able to get a pass.
Let’s dispel a myth: Burger King actually isn’t moving to Canada. Its operations will remain almost entirely here in the U.S. It won’t shut down the more than 7,000 restaurants its franchisees operate here. It won’t lay off thousands of fast-food employees. It won’t give up its $8.5 billion in annual sales to American consumers. And it won’t stop taking advantage of our roads and bridges, our legal system, our patent protections and all the other things on which its American profits depend.
Burger King is just going to pay less for those privileges — leaving the rest of us to pay more.
Even though the minimum wage in Canada is substantially higher than in the United States, Burger King employees shouldn’t expect to get a raise. The corporation likely will still pay its American workers low wages and meager benefits. Burger King’s employees will continue to rely on health care, food stamps and other public benefits worth an estimated $356 million a year, while American taxpayers pay the costs.
Burger King also will continue to enjoy a lucrative business as the predominant hamburger chain on military bases around the world. As a new Canadian corporation, it will generate an estimated $875 million in revenue selling fast food to American troops on military installations over the next five years.
What would American service members on a U.S. base in Afghanistan think if they knew Burger King has renounced its U.S. corporate “citizenship?” Could those who fight for our country comprehend an American company pretending to be a foreign one to avoid paying its fair share in taxes?
Burger King, which will continue to operate thousands of restaurants throughout the United States, doesn’t understand patriotism or country. For Burger King, it’s all about money.