Without naming names, the White House on Monday appeared to condemn Burger King’s acquisition of Canadian chain Tim Hortons — a so-called “corporate inversion” by which the Miami-based fast-food giant would relocate its headquarters north of the border to avoid disproportionately high U.S. tax rates.
The $11 billion deal, confirmed by Burger King and Tim Hortons on Sunday night and consummated Tuesday morning, comes at a time when inversions are in the crosshairs of both the Obama administration and top Democrats in Congress, some of whom are pushing the president to use executive authority to prohibit the practice.
While the White House wouldn’t comment on the specific negotiations, administration officials made clear again Monday that they believe inversions are morally wrong and confirmed executive action hasn’t been ruled out.
“There may be an opportunity for the Treasury Department to change some rules in a way that removes or at least reduces the financial incentive for some American companies to consider those kinds of transactions,” White House spokesman Josh Earnest told reporters. “The president … doesn’t believe that a company simply switching their citizenship, filling out a few papers to switch their citizenship to avoid paying their fair share in U.S. taxes, is good policy. It certainly isn’t fair, and it certainly isn’t fair to the millions of middle-class families in this country that don’t have that option.”
Reports of negotiations between the two companies first were reported by The Wall Street Journal. In confirming those reports, Burger King and Tim Hortons — a Canadian cultural touchstone boasting more than 3,600 stores domestically and 866 in the U.S. — said a deal would result in the formation of the world’s third-largest fast-food restaurant company, with over $22 billion in sales and 18,000 locations around the world.
“Tim Hortons and Burger King each have strong franchisee networks and iconic brands that are loved by their respective customers,” the companies said in a brief statement, adding that they will remain mum until a deal is agreed to or talks cease.
Burger King currently is headquartered in Miami and is subject to the 40 percent American corporate tax rate, the highest in the developed world. In Canada, long seen as one of the higher tax environments in the industrial world, the new company would pay about 26.5 percent in corporate taxes.
Over the past decade, at least 47 U.S. corporations have moved their headquarters to another country, according to Congressional Research Service data, a study that has been touted by Democrats who want to end the tax-avoidance method.
Amid heavy criticism, drugstore chain Walgreens earlier this month dropped plans to move its headquarters overseas.
“The reported deal with Burger King, an American company, highlights the need for Congress to act with urgency to keep companies in the U.S. rather than moving abroad. We need to seriously examine the reasons behind this reported deal and take steps in the immediate future to prevent further erosion of the U.S. tax base,” Rep. Sander Levin, Michigan Democrat and his party’s ranking member on the House Ways and Means Committee, said in a statement Monday.
Several proposals to stop inversions are emerging in the Democratic-controlled Senate, including a rule put forth by Sen. Chuck Schumer of New York and another looming proposal from Senate Finance Committee Chairman Ron Wyden, who says a bipartisan bill could be unveiled next month.
Both congressional Democrats and the White House favor retroactive action that would punish corporations that relocated overseas months or even years ago.
Despite that, some specialists say powerful companies still are tempted to make a move before Mr. Obama and congressional leaders have the chance to act.
“Every board and every CFO in this country right now has got a bunch of tax lawyers and accountants standing at the door of the board room saying, ‘You have to consider this. You have to positively consider this because Congress is going to close the door on it or something is going to happen. And all of your competitors are doing this,’” said Lee Sheppard, a contributing editor at Tax Analysts, a nonprofit that produces print and online publications devoted to tax policy.