There is perhaps no meal more synonymous with American cuisine than a hamburger, fries and an ice cold beverage. Fighting for the title of “America’s Burger” since its creation in by 1957, the Whopper has come to rival the Big Mac in American fast food lore. Yet this most American of products will soon be getting a new home, Canada.
That’s because Burger King is merging with Canadian fast food coffee and breakfast chain Tim Hortons – a transaction that would move their corporate headquarters to Canada. While this deal certainly provides tangible benefits to both firms, such as Burger King increasing their coffee quality and Tim Hortons growing its global presence. But there is a motive that goes beyond providing better quality products to the customer, taxes.
By merging with Tim Hortons, Burger King is adopting Canada as its corporate headquarters – and also lowering its tax rate. The United States currently has the highest corporate tax rate in the industrialized world at 35 percent – a number that is even higher when including state and local rates. Canada on the other hand has a corporate tax rate of just 15 percent and ranks a full 4 spots higher on worldwide economic freedom rankings. These economic incentives will make Burger King far more competitive in the world market, as its increased stock price already indicates.
This megamerger is just the latest example of what is known as a “tax inversion” which have become hotter than the coffee at Tim Hortons. Like Burger King, many U.S. companies are exploring the option of purchasing a foreign company to lower their crushing tax burden. Since 2011 there have been 22 such deals, but the frequency of such deals has increased from a paltry 1 percent of U.S. outbound deals in 2011 to 66 percent 2014-- with more deals on the horizon.
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