Burger King stock soars on whopper of a tax deal
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Burger King is working on a whopper of a business deal.
The burger chain is in talks with Canadian restaurant chain Tim Hortons about merging, a plan that, if accomplished, would create the world's third-largest fast food restaurant company, with more than 18,000 outlets in 100 countries and about $22 billion in system sales, the companies said in a statement.
Shares of Burger King (BKW) surge 23% in afternoon trading on the news that the companies were looking to create a new, publicly traded company headquartered in Canada.
With a new base in Canada, Burger King, now based in Miami, could shave its U.S. tax bill. Tax inversions have become increasingly popular among U.S. companies trying to cut costs.
In an inversion, a U.S. company reorganizes in a country with a lower tax rate by acquiring or merging with a company there. Inversions allow companies to transfer money earned overseas to the parent company without paying additional U.S. taxes. That money can be used to reinvest in the business or to fund dividends and buybacks, among other things.
One Way to Fix the Corporate Tax: Repeal It
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“Some people are calling these companies ‘corporate deserters.’ ”
That is what President Obama said last month about the recent wave of tax inversions sweeping across corporate America, and he did not disagree with the description. But are our nation’s business leaders really so unpatriotic?
A tax inversion occurs when an American company merges with a foreign one and, in the process, reincorporates abroad. Such mergers have many motives, but often one of them is to take advantage of the more favorable tax treatment offered by some other nations.
Such tax inversions mean less money for the United States Treasury. As a result, the rest of us end up either paying higher taxes to support the government or enjoying fewer government services. So the president has good reason to be concerned.
Yet demonizing the companies and their executives is the wrong response. A corporate chief who arranges a merger that increases the company’s after-tax profit is doing his or her job. To forgo that opportunity would be failing to act as a responsible fiduciary for shareholders.
Of course, we all have a responsibility to pay what we owe in taxes. But no one has a responsibility to pay more.
The great 20th-century jurist Learned Hand — who, by the way, has one of the best names in legal history — expressed the principle this way: “Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one’s taxes.”
If tax inversions are a problem, as arguably they are, the blame lies not with business leaders who are doing their best to do their jobs, but rather with the lawmakers who have failed to do the same. The writers of the tax code have given us a system that is deeply flawed in many ways, especially as it applies to businesses.
The most obvious problem is that the corporate tax rate in the United States is about twice the average rate in Europe. National tax systems differ along many dimensions, making international comparisons difficult and controversial. Yet simply cutting the rate to be more in line with norms abroad would do a lot to stoaap inversions.
Comment: A close relative is changing their tax domicile from Minnesota to Florida just to save on state income taxes and to eliminate inheritance taxes.
