By Haddon Libby
Increasingly, American companies have been reincorporating abroad in order to reduce their taxes. Over the last decade, approximately 50 of Americans largest companies have done this.
Burger King is the most recent company looking to do this by potentially acquiring Canadian doughnut/coffee shop king, Tim Horton’s. The combined entity would have a market capitalization of $18 billion of which Tim Horton’s is $8.4 billion while Burger King is $9.6 billion.
Termed “tax inverson”, a U.S. company can change their legal residency so long as 20% of their company is held by the shareholders of the foreign company. Burger King is looking to drop their effective tax rate from 35% to 26.5% as a result of this merger. Given that Burger King paid $88.5 million in taxes last year and is expected to begin paying even more due to a successful turnaround that current management is achieving, this move would reduce their tax bill by approximately 46% or more than $40 million.
Canada isn’t the only company that U.S. companies are relocating to. Accounting firm KPMG recently did a report that compared U.S. tax rates with other countries. Canada came in first with tax rates that are 54% of U.S. rates. The United Kingdom came in second with taxes that are 67% of the U.S., Mexico third at 70% and The Netherlands fourth at 75%.
Conversely, France’s tax rates are 163% of those in the U.S., Italy at 136%, Japan at 119% and Germany at 116%.
The question to us as consumers is whether we want to support these companies that want our money but are not willing to pay the same tax rate as their U.S. competitors. For Burger King it is even worse as they are one of the companies in the U.S. that do not pay their employees a fair wage resulting in government assistance for a large portion of their workforce.
Wal-Mart is the king of the government assistance for their employees. You and I pay $1.3 BILLION in assistance to Wal-Mart employees. This translates to $1,000 per worker on average.
For comparison, In-N-Out Burgers is an example of another fast food restaurant that pays their employees living wages. Managers of their locations typically earn $100,000 or more – substantially more than the equivalent Burger King manager.
Other companies that have moved their headquarters overseas to reduce taxes include Houston-based Halliburton, the company that Dick Cheney served as CEO for. Halliburton moved their official headquarters to Dubai, United Arab Emirates in 2007 to reduce taxes. Accounting firm Accenture relocated to Bermuda for the same reason. Accenture is the remnants of Arthur Anderson, the accounting firm that helped Enron to defraud investors and manipulated energy markets here in California that you and I continue to pay for via some of the highest electricity prices in the nation. Medtronic of Minneapolis, the medical device company, moved to Ireland to reduce their tax rate from 35% to 12.5%.
A large part of the solution to the flight of multi-billion dollar companies to other countries is in reforming the absurdly complex tax code of the United States. Given the level of dysfunction in Washington D.C., do we have any reasonable hope that this can be solved in the near term?
As for you and me, we can voice how we feel about things by not patronizing businesses that move offshore. When making investments with your savings and IRA accounts, you may want consider excluding companies that take the maximum amount they can from the United States but are not willing to pay their fair share.
