Burger King might flip its tax burden to Canada with proposed merger

Burger King was in merger talks Monday with Canadian coffee chain Tim Hortons. A successful deal could help the American fast-food giant reduce its U.S. taxes through a process called inversion, in which companies can transfer money earned overseas to the parent company without paying U.S. taxes.

Critics in Canada are unlikely to be happy if their beloved Tim Hortons, known for its doughnuts and coffee, falls into foreign hands. The deal is also expected to raise hackles in the United States, with opponents decrying Burger King’s avoidance of some U.S. taxes.

Tax inversions have become popular in the last two years as low interest rates are making it cheaper for companies to make acquisitions, KeyBanc analyst Christopher O’Cull told clients. According to Bloomberg, there have been 41 such reincorporations since 1982, with 12 just in the last two years.

Tax policy experts say Burger King’s move might work out for some business — but not for others.

Dean Baker, a co-director of the Center for Economic and Policy Research, a fiscal policy think tank, said companies that value their public image should weigh the benefits of lower taxes against the risk of alienating consumers.

“You only save on your taxes if you have profits,” he said.

In the case of Burger King, Baker said, “it will depend on public reaction in the U.S. If there’s negative reaction, they’re going to hurt the brand they’ve built over many years.”

Walgreens drug store chain’s plan to switch its official headquarters to Switzerland earlier this summer sparked a backlash that ultimately scuttled the deal on Aug. 6. Other companies’ recent attempts at inversion deals have drawn the attention of President Barack Obama, who criticized a “herd mentality” among companies seeking such agreements.

Walgreens Co. said in a statement that it was “mindful of the ongoing public reaction to a potential inversion” and of its “unique role as an iconic American” retailer.

But companies that sell products and services mostly to other businesses can probably pull off such a move with minimal public scrutiny, Baker said.

Baker said the proposed Tim Hortons merger is not likely to have much of an effect on Burger King workers, many of whom make minimum wage.

Frank Clemente at lobbying group Americans for Tax Fairness said that removing Burger King’s tax revenue from the public’s reach means that the rest of the U.S. — including individuals and small businesses — will have to pick up the tab.

“It’s a zero-sum game. If you lose money, you’ve got to replace it,” Clemente said, adding that his group found that retail giant Walmart — which employs about a million people — receives roughly $6.2 billion in subsidies a year, including offsetting low wages with welfare.

Clemente said a merger between Burger King and Tim Hortons would be unlikely to lead to layoffs, because Burger King, a burger restaurant, and Tim Hortons, which serves coffee and pastries, do not compete for customers.

Calls seeking comment on the proposed merger from Burger King and Tim Hortons were not immediately returned. 

Al Jazeera and wire services. Wilson Dizard contributed reporting.