US dollars to Canadian donuts
Tim Hortons has long been a regular stop over every time I visit Canada.
For one thing, he couldn’t avoid Tim Hortons outlets if he wanted to; they are everywhere. However, I really like their donuts. The chain is the largest seller of coffee and donuts in Canada and celebrated its 50th anniversary this spring.
Given the ubiquity and popularity of Tim Hortons, it’s no wonder American dollars are chasing Canadian donuts.
It recently emerged that Burger King Worldwide Inc. is in talks to buy Tim Hortons. If the deal is successful, the combined companies would collectively have about $ 22 billion in sales, making the fast-food startup the third-largest in the world.
However, Burger King wouldn’t just secure a Canadian institution with habit-forming baked goods. It would also generate a more favorable fiscal situation, courtesy of a move north of the border. In the proposed version of the merger, Burger King would create a new Canadian-based parent company, which would house both chains operating independently. This structure would house Burger King in Canada and preserve Tim Hortons’ domicile there.
While anonymous sources briefed on the deal told The New York Times that taxes were not the primary motivation behind the talks (1), Burger King is obviously aware of the tax implications. Canada lowered its national corporate tax rate to its current level of 15 percent several years ago. (Businesses there must pay provincial taxes as well, which means Ontario-based corporations like Tim Hortons currently pay 26.5 percent in total.) Meanwhile, the US insists not only on a 35 percent federal corporate tax rate, plus state taxes in most places, but on the imposition of corporate taxes on profits around the world. Burger King currently doesn’t have much cash out of the country, the Times reported, but it can certainly have an eye on future expansion, both in Canada and elsewhere. (1)
Although Burger King is a US company, it is controlled by a Brazilian investment firm, 3G Capital, which owns about 70 percent of the company’s shares. Why would Brazilians want to continue paying US taxes on the profits of the hamburgers they sell in Buenos Aires or Hong Kong? There is no reason why they would. Under the tax systems in place almost everywhere outside of the United States, there is no reason for them to do so either.
As for Burger King’s American shareholders, like all corporate shareholders here, they are taxed twice: once on corporate profits and again when the corporation pays dividends. This makes tax investment – relocating a company headquarters to a lower-tax nation, as Burger King does – an attractive prospect, even for American shareholders. It’s also worth noting that the most vehement critics of investing are almost always people whose income is only taxed once, and often that the income is a salary paid by taxpayers.
The current president has made no secret of his dissatisfaction with the practice. Obama and the Democrats have complained about unpatriotic American corporations, as if there is an inherent patriotic duty that income earned abroad be taxed in the United States at least once. In the wake of at least five major US companies that announced investment plans between mid-June and late July, Obama criticized the herd mentality that goes into decisions, calling companies “corporate defectors who renounce their citizenship to protect their assets. Profits”. (2) This characterization imagines that corporations are owned by no one, or by Martians, who otherwise lack citizenship elsewhere on Earth.
The administration is said to be looking for a way to make it difficult or impossible to invest in the future. Treasury Secretary Jacob Lew has acknowledged that his agency is looking for ways to hinder or stop investments without the need for legislative support from Congress.
However, unlike government-regulated banks, which under pressure have shell out billions of dollars in fines for real or imagined crimes, most private corporations have legal teams that are well used to challenging the Service’s judgments. of Internal Taxes. We have an active and independent Tax Court in this country. The IRS is a frequent litigator and not an uncommon loser, especially when faced with adversaries with technical knowledge and financial resources, such as those found in large corporations. If the administration wants to challenge investments by using, say, novel interpretations of the tax law, it shouldn’t expect most American businesses to flip as banks have.
Even if the government manages to make impractical investments for US-based companies, it is unlikely that it will be satisfied with the outcome. Blocking investments here will only make US companies acquisition targets for foreign companies. The acquirers will simply buy American companies and relocate the headquarters, or its assets, once the deal is completed. In the process, even more American jobs will be lost.
When Canada lowered its corporate tax rate, critics warned that the measure would be disastrous for the Canadian federal government’s revenue. If Burger King’s investment is any indication, an attractive tax structure can more than offset a lower rate by attracting new and existing companies to establish their headquarters in Canada.
The sensible thing is to recognize once again that neither Martians nor corporations pay taxes. Shareholders and customers, in other words, people, do it. If those people have no connection to the US other than the legal domicile of a corporation, they will find ways to break their ties rather than finance a foreign government at exorbitant rates.
Sources:
1) The New York Times, “Burger King in talks to buy Tim Hortons and move to Canada”
2) Bloomberg, “Obama Says Tax Law Must Stop ‘Corporate Defectors'”
