Burger King's whopper deal with Tim Hortons leaves bad taste over tax

Burger King confirmed a deal Tuesday to buy Canadian restaurant chain Tim Hortons for about $11.4 billion — a move that would create the world's third-largest fast-food company but is raising the hackles of critics who accuse the burger firm of flipping to Canada for tax reasons.

While the two brands will continue to be run as stand-alone chains, with Burger King still operating out of Miami, the corporate headquarters of the new company would be in Canada.

Some analysts and politicians critical of the deal point toward Canada's lower tax rate as a reason behind the hook up. Burger King has said that's the not main motivation for the deal, but their protestations have failed to stem a backlash against the merger.

During a conference call with analysts and investors on Tuesday, Burger King Executive Chairman Alex Behring stressed that international growth possibilities are driving the deal. 

He noted that 3G Capital, the investment firm that owns a majority stake in Burger King, has turned the hamburger company into one of the fastest-growing chains since buying it in 2010. That experience would be applied to Tim Hortons, Behring added.

"It's not being driven by tax rates," he said.

But in recent years, a succession of U.S. companies, including Adderall maker AbbVie and medical device firm Medtronic, have acquired businesses in countries with lower tax rates and then moved their headquarters there. 

Such moves, referred to as tax inversions, have become the subject of criticism by President Barack Obama and Congress. They result in a loss of revenue for the U.S. government since the companies can now transfer money earned overseas to the parent firm without paying U.S. taxes

News of Burger King’s deal was similarly condemned from some in Washington.

“At a time when this country has a $17 trillion national debt and we have huge unmet needs in terms of education and infrastructure, the American people are sick and tired of large corporations not paying their fair share of taxes, running abroad for cheap labor, and in the case of Burger King, running abroad to lower their tax rates,” Vermont Sen. Bernie Sanders’ office tweeted on Tuesday.

Meanwhile Sen. Sherrod Brown, D-Ohio, said: “To help business grow in America, taxpayers have funded public infrastructure, workforce training and incentives to encourage R&D and capital investment. Runaway corporations benefited from those policies but want U.S. companies to pay their share of the tab.” 

After the deal, which is expected to close by early next year, the new company would have about $23 billion in sales and more than 18,000 locations.

The tie-up could help Burger King and Tim Hortons pose a greater challenge to market leaders McDonald's and Starbucks and reflects a desire by both companies to expand internationally. 

Burger King, which has nearly 14,000 locations, has been striking deals to open more locations in developing markets. The company sees plenty of room for growth internationally, given the more than 35,000 locations McDonald's has around the world. Tim Hortons has more than 4,500 locations, mostly in Canada.

Al Jazeera and wire services