Burger King’s plan to base its corporate parent in Canada after it acquires Tim Hortons will allow the company and its top shareholders to “dodge” $400 million to $1.2 billion in U.S. taxes from 2015 to 2018, according to a newly released report by Americans for Tax Fairness.
Burger King responded to the report on Wednesday, saying: “The analysis in the report is materially flawed and the figures do not accurately represent our facts and circumstances.”
Miami-based Burger King Worldwide in August agreed to buy Tim Hortons in an $11 billion deal that will create the world’s third largest fast-food chain. While Burger King will continue to be headquartered in Miami, the corporate parent will be based in Canada. Tim Hortons shareholders approved the deal on Tuesday, and it is expected to be completed on Friday.
Burger King’s top executives have stressed that the deal wasn't driven by a desire for lower tax rates but by a growth strategy designed to create value through accelerated expansion. Daniel Schwartz, Burger King’s chief executive told analysts in August that the company doesn't expect to achieve any “meaningful tax savings or meaningful changes in our tax rate.” In fact, the company's effective tax rate in the United States is 27 percent, and in Canada, it will be about 26 percent, the company said.
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The Americans for Tax Fairness’ report found that by renouncing its U.S. corporate citizenship, Burger King would not have to pay $117 million in U.S. taxes on profits that it held offshore at the end of 2013. “Burger King has been able to indefinitely defer paying taxes on those profits under U.S. law; by becoming a Canadian company it may never pay U.S. taxes on those profits,” the report said.
Burger King also may avoid an additional $275 million in U.S. taxes between 2015 and 2018 because it will no longer have to pay U.S. taxes on future worldwide profits, according to the report from the ATF, a coalition of 425 national and state organizations that advocates for tax reform.
In addition, Burger King’s largest private shareholders could save as much as $820 million in capital gains taxes as a result of the inversion, the report said.