Group pegs BK’s tax savings from Canadian relocation at $400M

Burger King’s planned merger with Canadian coffee chain Tim Horton’s will save the company and its leading shareholders hundreds of millions of dollars in U.S. taxes, despite the company's repeated assertions that the deal is not motivated by tax savings, a report released Thursday by Americans for Tax Fairness (ATF) finds.

The merger, which Tim Horton’s shareholders discussed this week, is expected to close Friday. The deal would save Burger King an estimated $400 million to $1.2 billion in U.S. taxes between 2015 and 2018, ATF says.

“Burger King says it’s not really about taxes,” said Frank Clemente, executive director of Americans for Tax Fairness, in a statement. “But… it’s not credible to say that a potential tax break of $1 billion didn’t influence its decision to become a Canadian company.”

Under the deal, Miami-based Burger King would move its headquarters to Canada while maintaining operations in the U.S. Both Burger King and Tim Horton's would become subsidiaries, headquartered in Canada, of a new entity named New Red Canada Partnership. So-called inversions like this have become more common in recent years, especially in the pharmaceutical and medical device industries. Companies that invert leave behind the 40 percent corporate tax rate in the U.S., the highest of any major developed economy, to instead pay taxes to the government of their new headquarters. Often, day-to-day operations do not change much or at all, and U.S. executives still control the newly foreign company.

In September, the Obama administration prohibited a primary motivation of inversions, in which American companies that had become foreign corporations would borrow money from foreign subsidiaries, skipping the U.S. unit, then use the cash to repurchase shares of the U.S. units to provide them with a non-taxable income stream.

Burger King could dodge $117 million in U.S. taxes on profits it held offshore at the end of last year, ATF says. Under U.S. law, the company has been able to defer paying taxes on those profits. By becoming a Canadian company, it may never pay those taxes.

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