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(Update)
The mega deal between Burger King and Tim Hortons is garnering a lot of attention — not only amongst loyal consumers of the two brands, but also policy makers. And now we know that one of the world’s richest men is involved in the deal — Warren Buffett. This deal is fast becoming bigger than just two giant fast food restaurants combining forces. It is now putting the spotlight on the tax systems of each country, and is calling attention to a loophole called tax inversion.
Daniel Schwartz is CEO of Burger King: “We don’t expect there to be any meaningful tax savings nor do we expect there to be a meaningful change in our tax rate.”
Burger King denies that the deal to buy Tim Hortons will give the company a big tax break, but it admits to using the tax inversion transaction model. It’s the latest of dozens of U.S. companies to do so — relocating their headquarters to Canada where the corporate tax rate is lower than in the U.S. And it’s raising concerns among U.S. policy makers.
Republican Matt Salmon tweeting: “The news of Burger King’s move to Canada ought to motivate us to take a serious look at how we do business.”
And Democrat Chris Van Hollen says: “Burger King wants your money. Now they want you to pay their taxes too. Time to ditch the whopper?”
Canadian politicians are also weighing in. Canada’s Finance Minister Joe Oliver avoided answering the question of whether Canada is becoming a tax haven, but had this to say about the country’s highly competitive tax regime: “This has been constructive move that is designed to retain capital in the country which results in more business expansion and employment. Canada is open for business and Canada has become a very attractive place for capital and growing business.”
Oliver added this is an acquisition will be evaluated by Investment Canada to determine if it’s a net benefit to the country.
While corporations and consumers watch the deal unfold, Burger King continues to insist it is not tax-driven.
Daniel Schwartz: “If you’re combining two companies, you have to think, what’s the natural place for the global headquarters. Well it’s where the company’s largest market, largest business is going to be and the business, when you combine the two companies, the business in Canada is actually going to be nearly 2 times to the next closest market so it makes sense for where the global headquarters are going to be.”
Many reporters dialed in on the call were skeptical to hear that the Canadian market is bigger for business than the American one for the newly created company. But Burger King says it is. U.S. President Obama has openly stated he is against inversion deals and that companies involved in them are quote “corporate deserters.” He hasn’t, however, commented on his friend, Warren Buffet’s financial backing of the Burger King and Tim’s deal. And it’s still making waves on the markets. Today, Tim Hortons shares went up 8.1% while Burger King’s closed down 4.3%. The Canadian dollar though, was trading up in light of the transaction.
