Canada has become the latest frontier for U.S. companies fleeing the high cost of business, spurred by low corporate taxes and a policy that keeps international earnings out of the clutches of the Internal Revenue Service.

Burger King Worldwide Inc. (BKW), the second-largest U.S. burger chain, agreed to buy coffee-and-doughnut company Tim Hortons Inc. today for about C$12.5 billion ($11.4 billion) and move the headquarters of the combined company to Canada. It’s “not fair” that companies can renounce their U.S. citizenship by filling out paperwork, a White House spokesman said yesterday.

The deal, which is still subject to the standard approvals, for Oakville, Ontario-based Tim Hortons follows Valeant Pharmaceuticals International Inc.’s merger with Canada’s Biovail Corp. in 2010, which sparked the latest so-called tax-inversion wave.

Burger King is unlikely to be the last U.S. company to consider moving north even as President Barack Obama and his aides try to curb the practice, tax experts say. In addition to avoiding U.S. taxes on global earnings, companies like Burger King can take advantage of Canadian tax rates that have been cut by about a quarter in the past eight years.

Here is how Companies buy Tax Breaks

“We have now made it a lot more attractive for companies to say Canada is a good place to set up shop,” said Jack Mintz, director of the University of Calgary’s School of Public Policy.

Only income earned within Canada is taxed by the government, said Alex Edwards, assistant professor at the University of Toronto’s Rotman School of Management, noting this territorial system is the more common form of corporate taxation. In the U.S., profits from foreign operations in lower-tax regions are topped up to the federal rate when they’re repatriated, he said.

Tax Layers

“The real bang for the buck here is potential tax savings on Burger King’s non-U.S. earnings,” Edwards said by phone yesterday. “It’s not just the earnings in Canada, it’s the earnings everywhere in the world that might be able to escape that second layer of U.S. tax.”

As a result, Canada is primed for more of these tax inversion deals before the U.S. Congressmakes a decision on whether to block them, he said. He noted there was a wave of similar inversion deals in the late 1990s and early 2000s where U.S. companies were domiciling in foreign jurisdictions with holding companies, including in Canada, to get around U.S. tax laws before Congress moved to end those activities.

“What’s driving this is not so much the Canadian tax code but the U.S. tax code,” Edwards said.

Companies that consider actions like an inversion continue to benefit from all of the resources of the U.S., White House spokesman Josh Earnest told reporters yesterday in Washington.

http://www.bloomberg.com/news/2014-08-25/tim-hortons-targeted-as-u-s-tax-inversion-heads-north.html

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This entry was posted on August 26, 2014 at 3:50 pm and is filed under Uncategorized with tags Boycott Burger King, Burger King, Burger King Inversion Tax, Burger King Moving to avoid taxes, Burger King Moving to Canada, Canada, Companies Moving Overseas To Avoid Taxes, President Obama, Republicans Benefit From Tax Inversions, Republicans Favor The Rich, Tax Inversions, Time to make the Tax Code Fair. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.