Much of the reporting around Burger King's deal to acquire Tim Hortons for $11.4 billion has been about plans for the combined company to establish its headquarters in Canada in order to take advantage of that country's lower corporate tax rate in a so-called inversion deal.
For its part, Burger King has said the decision to move to Canada is not about avoiding taxes in the U.S., but is about establishing a base for global operations in the country where it has the greatest presence. The combination of Burger King, the second largest hamburger chain in the world, and Tim Hortons (or Timmy's, as it is known in Canada) will create the third-largest quick service restaurant company worldwide.
"Over the past four years, we have transformed Burger King into one of the fastest-growing and most profitable QSR businesses in the world, through successful international growth, a consistent focus on brand revitalization and strong commitment to our franchisees," said Burger King CEO Daniel Schwartz in a statement. "We are excited to build on this progress as we continue to expand Burger King around the world and look forward to working with Tim Hortons as we together create the world's leading global restaurant business."
Burger King operates more than 13,000 locations in 98 countries and territories across the planet. Tim Hortons has 4,546 doughnut and coffee shops overall, with 3,630 in its home market, 866 in the U.S. and 50 in the Gulf Cooperation Council.
Burger King executives claim the impetus behind the deal was to accelerate expansion. "We don't expect there to be meaningful tax savings or any meaningful changes in our tax rate," Mr. Schwartz was quoted by The Wall Street Journal.
Company executives said its current effective tax rate is in the mid-20 percent range. The official federal corporate tax rate in the U.S. is 35 percent, although a 2013 Government Accountability Office report, commissioned by Senators Carl Levin (D) and Tom Coburn (R), found the average effective federal rate is 12.6 percent. State and local levies are estimated to add roughly four percent to the federal rate.
Despite assertions to the contrary, there will be those who see Burger King's deal as a means to avoid its tax obligation here in the U.S. The question is whether the company will face a backlash from U.S. consumers who may see its move to Canada as turning its back on America.
Will Burger King's decision to move its worldwide headquarters to Canada help or hurt its businesses in the U.S.?