Burger King’s $11 billion acquisition of a Canadian coffee-and-doughnuts chain has fired up Senate Democrats and led to calls for a boycott, but the iconic fast-food joint hit back Tuesday as it finalized the deal.
Burger King dismissed charges from Democrats and other critics that its deal to buy Tim Hortons Inc. is a so-called tax “inversion” scheme to avoid higher U.S. corporate taxes by relocating to Canada.
“Burger King has and will continue to pay taxes in the United States. Tim Hortons has and will continue to pay taxes in Canada. When you look at why we get so excited about this transaction, it’s about the growth that is to come,” Burger King CEO Daniel Schwartz.
“We don’t expect there to be meaningful tax savings, nor do we expect there to be a meaningful change in our tax rate.”
The new corporation formed by the merger will be headquartered in Canada, which the companies say will be their largest market.
Some economic and tax analysts dispute Mr. Schwartz’s claim. Even though the Burger King brand’s headquarters will remain in Miami, specialists say the newly formed corporation could use a technique known as “earnings stripping” and saddle the U.S. side of its operation with debt to reduce profits, thereby reducing taxable income in America.
Beyond that, analysts also say the corporation can take advantage of deductions and loopholes in the Canadian tax code just as they do in the U.S.
“They won’t pay that corporate rate. They’ll pay something less. There really are tax benefits to this,” said Peter Morici, an economist and business professor at the University of Maryland.
Democrats also clearly aren’t buying the company’s explanation. After having inversions in their crosshairs for years, Democrats now have a recognizable face to put to the practice.
“Burger King’s decision to abandon the United States means consumers should turn to Wendy’s Old Fashioned Hamburgers or White Castle sliders. 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,” said Sen. Sherrod Brown, Ohio Democrat.
Both Wendy’s and White Castle are headquartered in Mr. Brown’s home state.
Sen. Bernie Sanders, a Vermont independent who caucuses with the Democrats, had even harsher words for the iconic American burger joint.
“Burger King is so visible, it puts the focus on the general behavior of corporate America and, in a sense, the contempt that they feel for the average American and, in fact, the United States of America,” he told The Huffington Post.
While Senate Democrats are pursuing several proposals to address inversions, President Obama also is eyeing executive action.