Corporate America is making a mad rush to the exits in a bid to lower its tax bill. But experts say the odds of political intervention in the stampede have increased as a result of a U.S. burger icon’s plans to become Canadian.
U.S.-based Burger King Worldwide Inc. (NYSE: BKW) has confirmed it is in talks to take over Canadian doughnut and coffee maker Tim Hortons Inc (TSX: THI). The new company would be headquartered in Canada, making Burger King the latest U.S. company wanting to relocate to a lower-tax jurisdiction through a so-called inversion strategy.
It’s an issue that’s gotten enormous attention in the United States. "They’re declaring they’re based someplace else even though most of their operations are here," U.S. President Barack Obama said of the trend in July. "My attitude is, I don’t care if it’s legal. It’s wrong."
Asked about the possible Burger King transaction Monday, White House Press Secretary Josh Earnest said that while it may be some time before Congress takes comprehensive action to reform corporate taxes, lawmakers could pass a standalone piece of legislation that would close the inversions loophole.
Consumers may not wait that long to voice their own opinion, other Democrats said.
Ohio Senator Sherrod Brown urged people to boycott Burger King over its move to relocate to Canada and eat at rival Wendy’s or White Castle instead. Meanwhile, Senator Carl Levin said he believes Burger King risks a backlash from its customers that would outweigh any tax benefit.
While the size of the potential Tim Hortons – Burger King deal isn’t as large as many other inversion transactions, the sheer visibility of the companies involved may force political action in a way previous deals haven’t.
During the past two years alone, at least 21 U.S. companies have announced or completed deals to relocate outside the U.S. and thus achieve some tax relief, according to Bloomberg data. That’s about half of the 51 such transactions during the past three decades. Investment bankers have continued to push the strategy on companies, despite the president’s warning.
Burger King shares began Tuesday trading up 71 cents, or 2.2% to $33.11 U.S., while Tim Hortons ballooned in Canada by $7.42, or 9.1%, to $89.45.
