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Burger King sparks ‘inversion’ backlash

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US fast food giant Burger King has reportedly sparked a backlash when it announced a merger with Canadian doughnut chain Tim Hortons. According to The Independent (26 August), American politicians and the public alike have accused Burger King of ‘tax dodging’ and have called for customers to boycott the company, after both Burger King and Tim Hortons confirmed they were in talks to create the world’s third biggest fast food chain, said to be worth $18bn. The newly formed company would be based in Canada, which boasts a main rate of corporation tax of 26.5%, rather than in the US where Burger King is currently headquartered and where the corporation tax rate is 35%.

The merger comes amid a growing trend of US ‘tax inversions’, where US corporates acquire or merge with a foreign company based in a jurisdiction with a lower tax rate than the US, moves its headquarters there and enjoys the reduced tax rate that such a move allows. Target companies in European countries have also been considered, with the UK as a leading destination of choice for US companies seeking an exit.

The trend of US tax inversions is ‘unsurprising’, according to Frédéric Donnedieu de Vabres, chairman of Taxand. ‘With a federal tax rate of 35% and an overall rate that can be close to 40% including state and local taxes, the US has the highest corporate tax rate among major world economies,’ he said. ‘On top of this, unlike many other jurisdictions, US corporations are also taxed on their worldwide income. It is unsurprising then that a number of businesses are exploring corporate tax inversions – a transaction whereby a foreign corporation acquires a US company so as to remove non-US business expansion from the reach of the US corporate tax system.’

Issue: 1229
Categories: News , Corporate taxes