It’s not every day that a U.S. senator questions the patriotism of a fast-food chain, but yesterday, Sen. Sherrod Brown (D-Ohio) went after Burger King with a vengeance.
“Burger King’s decision to abandon the United States means consumers should turn to Wendy’s Old Fashioned Hamburgers or White Castle sliders,” the Ohio Democrat said in a statement. “Burger King has always said ‘Have it Your Way’; well my way is to support two Ohio companies that haven’t abandoned their country or customers.”
What’s the cause behind Brown’s ire? This is.
Burger King confirmed Tuesday that it struck a deal to buy Canadian coffee and doughnut chain Tim Hortons for about $11 billion. […]The deal, which has been approved by both company’s boards, could help give Burger King a stronger foothold in the coffee and breakfast market to challenge McDonald’s and Starbucks. Burger King and Tim Hortons said the chains will continue to be run independently and that Burger King will still operate out of Miami.
For those unfamiliar with Tim Hortons, it’s Canada’s largest fast-food chain, though it has international locations.
At face value, these kinds of deals are not uncommon – big chains buy smaller chains all the time. But what makes this politically controversial is the fact that Burger King made the move in the hopes of reducing its tax bill. The idea, as Danny Vinik explained, is the latest high-profile example of tax inversion in which the U.S. fast-food giant would “switch its official tax jurisdiction” to Canada, which has a lower corporate tax rate.
If it sounds ridiculous that an American company can purchase a foreign firm and suddenly avoid the U.S. corporate tax system, that’s because it is. Under current U.S. tax law, if the American company transfers 20 percent or more of its shares to the foreign firm, it can switch its official tax jurisdiction. It doesn’t matter that the vast majority of the shareholders are still American. Or that the management and control of the company remains in the U.S. Or that in making the deal, nothing about the company actually changes. You would still be able to grab a Whopper for lunch. Its thousands of American workers will all still have their jobs. But Burger King will have opted out of the U.S. corporate tax system.
For more background on this, we talked about tax inversions a few weeks ago. Steps to address the problem were likely to be part of a tax-reform package, but House Republicans killed their own plan in the Spring, and GOP lawmakers have vowed to reject freestanding legislation on the issue.
The policy has quickly become a top priority for congressional Democrats and executive action from President Obama remains a distinct possibility.