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POLITICS: PennAve

Burger King seeking to acquire Tim Hortons and move headquarters to Canada

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Politics,Food and Drink,Taxes,Canada,PennAve,Joseph Lawler,Economy,Mergers and Acquisitions,Corporate Inversion,Medtronic

The major fast food chain Burger King is in talks to merge with the Canadian donut and coffee chain Tim Hortons and move its headquarters to Canada.

Burger King would be one of the largest and most well-known companies to seek to leave the U.S. in a so-called corporate inversion, in which a U.S. company buys a smaller foreign company in a lower-tax jurisdiction and then places its headquarters in the foreign country to lower its tax bill. Its departure will likely heighten concerns about inversions eroding the American tax base.

In a press release announcing the discussions, Burger King and Tim Hortons said that they were pursuing the deal for business reasons and to accelerate Tim Hortons' international growth. But the new company's headquarters would be located in Canada, which has lower corporate taxes than the U.S.

President Obama has criticized companies attempting to move headquarters to lower-tax countries as “corporate deserters.” The Treasury Department is preparing options to prevent tax inversions through tax rules.

Congressional Democrats have introduced legislation to tighten the rules to prevent companies from fleeing the domestic tax base, but Republicans have opposed such measures, saying that they do not address the underlying problem of the U.S. tax code’s lack of competitiveness internationally.

An estimate of the Democratic bill prepared by the Joint Committee on Taxation suggested that in the absence of measures to stop inversions, enough companies may move their headquarters abroad to cost the federal government $20 billion over 10 years.

The number of inversions has grown dramatically in recent years. Earlier in the year, the pharmacy company Walgreen’s said it was exploring an inversion, only to reverse course after public opposition. Few other consumer-facing businesses have sought inversions. Instead, the biggest pending inversions are for the pharmaceutical company Abbvie and the medical device maker Medtronic.

Burger King's merger with Tim Hortons would create the third largest fast-food restaurant in the world, according to the Wall Street Journal, which first reported the news Sunday. Together, the companies are worth about $18 billion.

Canada's corporate tax rate is 15 percent, according to the Organization for Economic Cooperation and Development. The U.S. rate is 35 percent, the highest among OECD nations, although most businesses pay significantly lower effective rates.

This story was updated at 12:58 p.m.

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