On 23 Sep, 2014, the merger of Tim Hortons and Burger King was doubted for tax inversion.
This news also introduces the definition of Tax Inversion. It cites that:“ A tax inversion works when a U.S. business merges with or is acquired by a foreign company in a country with a lower tax rate. The new company then pays most of its global taxes in the jurisdiction with the lower rate, thereby shielding profits from taxation they used to have to pay.( cbcnews Sep 23, 2014)”(4)
According to the figures in the KPMG website, Canada’s corporation tax rates is 26.5% in 2014 while that is 40% in the United States.(1) And the Burger King’s revenue in the end of 2013 reached to $1,146.3 million USD while its net income reached to $233.7 million USD, which is searched from the financial statement in businessweek. (2)If the Burger King relocates it company to Canada, it can release a bulk of tax burden( roughly at $31.55 million USD).
This might be a strategy for the Burger King to cut its total costs and become more profitable.
However Obama urged for “economic patriotism”(3) from the U.S. companies, corporation inversion is still a common phenomenon in America.
Reference list:
(1)”Canada’s corporation tax rates is 26.5% in 2014 while that is 40% in the United States.” http://www.kpmg.com/global/en/services/tax/tax-tools-and-resources/pages/corporate-tax-rates-table.aspx
(2) “$1,146.3 million” & “$233.7 million”
http://investing.businessweek.com/research/stocks/financials/financials.asp?ticker=BKW
(3) “economic patriotism”
(4)”A tax inversion works when a U.S. business merges with or is acquired by a foreign company in a country with a lower tax rate. The new company then pays most of its global taxes in the jurisdiction with the lower rate, thereby shielding profits from taxation they used to have to pay. ”