In a story that reads like the thrilling absurdity of a Dan Brown novel; one that twists and turns your heart and forces you to the edge of your seat, Burger King has announced it will buy the quintessence of Canadian bragging rights, Tim Hortons. While people were in a state of somber shock when they first read the headlines, thinking they would see their beloved chain go, their fears were soon tempered when Burger King also announced it would be basing the joint entity in Canada. You know, I’m getting pretty tiered of this whole manifest destiny thing. You’d think burning down the White House once would get the message across.
It’s definitely been an emotional roller coster ride. The Timbit boxes you remember so fondly from the childhood rides to early morning hockey practices may be remembered as Whopperbits by your kid.
This surfacing of this deal has allowed for Timmie stocks to soar and also asks why Burger King is getting entwined in Corporate Canada in the first place? While Tim Hortons will benefit from the explosion into the U.S. market this deal will cause, it’s lucrative for Burger King in a much different way; instead of making money, it’s about saving money. What Burger King is planning is what’s called a tax inversion. Burger King will be incorporating in Canada, a country with much lower corporate tax rates than the U.S. (26.3% and 39.1% respectively). Though most of Burger King’s business will stay in the U.S., their taking up of headquarters in Canada will be letting them pay the Canadian tax rate. This loophole has been gaining popularity; the U.S. is seeing many of its precious corporations go to countries like Ireland with very low tax rates. I guess some love affairs were just never meant to last.
It’s our low tax rate which has given Canada the status of a tax haven…for corporations. Citizens have yet to reek the benefits of what “tax haven” implies. While investors have applauded this merger, something not yet considered is whether this corporate tax haven status is something we really want to be taking pride in. Does the new tax revenue from corporations moving to Canada outweigh the billions we lose through lower rates? NDP officials are skeptical as to how the deal will benefit Canadians. NDP industry critic Peggy Nash says, “Like all Canadians, New Democrats want details about the potential takeover of a company that employs 100,000 people in our country. Any foreign takeover needs to pass a net benefit test and not just a Conservative government rubber stamp.” While there has been an outpour of public support for the deal, like the benefits to the Canadian Pension Plan and Canadian mutual funds that hold millions of dollars worth of stock in Tim Hortons, the profit of the soaring stocks won’t turn into higher pension payouts and only Canadians that hold stake in these mutual funds would see benefits
To better understand how Canada can remain business-friendly while reforming our corporate tax laws to benefit Canadians, we must take a look at one of the most interesting states in the U.S., well, interesting if you’re in to tax legislation. If you’re not, than this state is pretty uninteresting. I’m talking about Delaware. Ah, Delaware. The Blue Hen State as well as the state remembered most often last when trying to name all 50. Delaware has also been given the status of a corporate tax haven. Nearly half of all public corporations in the United States are incorporated in Delaware as well as 64% of Fortune 500 companies. Delaware’s corporate tax rate is actually above average, so what attracts business to take up office there? It’s other aspects of Delaware’s corporate laws that help businesses reduce their tax liability. For example, Delaware does not tax “intangible assets” such as royalty payments. It’s also Delaware’s legal system that proves attractive to corporations. The Court of Chancery is a unique court that operates in Delaware that rules on legal issues for corporations. In most states, corporate cases are dealt with by the American civil courts and can take years to resolve. The Court of Chancery can rule on corporate cases in a matter of days.
It won’t be clear yet how much new tax revenue this deal will bring, or if it’s a better idea to adopt the Delaware model. We’ll have to wait to taste how the King Horton’s (or Burger Tim) deal unfolds. Though I can’t say I won’t be excited for the proposed Tim Horton’s menu additions we’ll be seeing in the future.