Burger King may soon own Tim Hortons, the Canadian doughnut and coffee chain loved by Drake and many other proud Canadians.
Under the proposed new deal, both brands will continue to operate separately, but under one new blanket company that will provide a corporate backbone to both brands.
In acquiring Tim Hortons, Burger King would also move its corporate headquarters to Canada in a type of deal that’s becoming more common in the business world. The maneuver called “tax inversion” is more commonly seen in pharmaceutical manufacturers such as AbbVie (makers of arthritis drug Humira), but the reasons companies pursue it are generally numbers.
As Quartz points out, the U.S. currently has the highest combined corporate tax rate (that’s including federal, state, and local taxes) of any OECD member country:
With a combined rate of 39.1% in the U.S., Canada’s 26.3% tax rate can definitely be seen as appealing if we’re only talking numbers. But of course, if you start to consider ethical stances on perceived tax dodging—even if it’s perfectly legal, as this would be—the waters get considerably murkier.
Drugstore chain Walgreens recently made headlines after it decided not to go through with a tax inversion deal that would have seen it move its corporate headquarters to Switzerland. Both the Obama Administration and general public sentiment saw this as an example of unsavory corporate tax dodging, and Walgreens cited those pressures as reasons to stay put in the U.S. instead. President Obama has even called such moves a lack of “economic patriotism,” according to the New York Times.
If it goes through, the Burger King/Tim Hortons deal would create the third largest fast food chain in the world. It would generate about $22 billion in revenue (we have to assume the NYT means USD, not CAD), and would have more than 18,000 restaurant locations worldwide.
The NYT cites “people briefed on deal negotiations” as saying that taxes aren’t actually the main issue in this discussion, and says that BK currently only pays about 27% in taxes in the U.S.—making any tax advantage of a move fairly negligible. The NYT also adds that BK doesn’t currently hold a lot of cash overseas. Access to cash held overseas is another common reason companies often go for tax inversion deals.
So why does BK want to move away, if not for tax incentives?
There are two reasons. One, Tim Hortons is an extremely iconic Canadian chain, and the Canadian government can step in and quash mergers under the Investment Canada Act if it decides those deals are not in the best interest of the country.
Two, this merger might give the combined chain a better chance to compete against the world’s top two fast food chains: McDonald’s and Yum Brands (which owns Taco Bell, KFC, and Pizza Hut).
So basically, it’s like Voltron, only with TimBits, coffee, and Whoppers.
Canada’s beloved Tim Hortons has been in non-Canadian hands before. Wendy’s International Inc. bought Tim Hortons in 1995, but dropped the company in 2006, according to CNBC.