Horton, the King and Inversion

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By: Sean Curry

It was confirmed on Tuesday that Burger King planned to acquire Canadian based doughnut and coffee shop giant Tim Hortons for $11 billion. This business move has become very controversial due to one fact that cannot be easily dismissed or denied: Burger King could relocate its headquarters to Canada in order to lower the amount of taxes it pays. This business practice, known commonly as inversion, is growing in popularity among US corporations that feel as though their 35% tax rate, which very few businesses actually come close to paying, is too high and thus have decided to purchase a company that is based in a country with a lower tax rate and relocate its headquarters to said country. Several controversial mergers have made headlines over the course of this year, the most recent being that of Walgreens and European pharmacy giant Alliance Boots. Their decision to relocate was only changed when they began to experience the massive and relentless backlash from social media.

Speaking of social media, thousands took to both Twitter and Facebook to complain about the merger/relocation and threatening to boycott Burger King. The hashtags “#BoycottBurgerKing” and “#BoycottBK” trended across twitter, spreading the word of the business deal and simultaneously causing the movement against inversion to gain both steam and popularity. Many others are urging government officials to take legal action by enacting legislation to heavily restrict or prohibit corporations from tax inversion. Some have even called for the removal of companies that practice inversion from US military bases as they are unpatriotic. The last time a company received this much backlash was when Walgreens attempted to relocated, and this time it provoked a response from Burger King assuring their customers that Burger King plans on staying in the US on their Facebook page. Their page states “We hear you. [Burger King] will continue to pay all of our federal, state and local US taxes. The Whopper isn’t going anywhere.”

Various Burger King officials deny the accusation that a lower tax rate was the sole motivation behind the decision. They assert that Burger King already pays a tax rate close to 30%, which they claim is roughly what they currently pay in the US. Even Daniel Schwartz, CEO of Burger King Worldwide, has stated “We don’t expect there to be meaningful tax savings,” and continues “This transaction is not about tax rates, but about growth.” Schwartz confirms that the deal would technically count as a so-called “inversion deal” in which the holding company will become a Canadian company for tax purposes, but  claims that, unlike the various other controversial inversion deals of the past, this deal will not see Burger King paying a lower tax rate.

Many government officials have also called for a boycotting of these businesses or proposed legislation to remove and eliminate the loop holes in the tax codes that allow inversion to take place. Specifically, Democrats have requested that President Obama exercise executive action in order to close the gaping hole that resides in the complicated US tax codes. White house spokesman Josh Earnest was quoted “The goal here is to change the law and get congress to pass legislation that would prevent the ability of American corporations to renounce their citizenship all in pursuit of trying to get out of paying their fair share of US taxes.” When news of the deal reached the ear of Democratic Ohio senator Sherrod Brown, who serves as a member on the Senate finance committee, he exclaimed “To help business grow in America, taxpayers have funded public infrastructure, workforce training and incentives to encourage [research and development] and capital investment. Runaway corporations benefited from those policies but want US companies to pay their share of the tab.” Even President Obama has publicly denounced corporate inversion, calling it an “unpatriotic loophole”.

Although their seems to be a limitless amount of people who support the elimination of tax inversion, Obama still could not rally enough support to enact legislation to address this serious issue before congress adjourned for recess. The push for executive action also has its own myriad of complications. Following through, without congress’s approval, would ultimately leave the administration open to various legal challenges and consequently inflame the already unstable and chaotic relations with Republicans.

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