After years of cutting costs at the corporate level, Burger King is ready to spend big again. But in doing so, it could actually be saving money in the long run.
The Wall Street Journal reported over the weekend that the American fast-food chain is in talks to acquire Canadian coffee-and-doughnut shop Tim Hortons in a deal that would raise the value of both companies to approximately $18 billion.
But the move has little to do with Burger King looking to invest in a new market and more to do with the restaurant pinching pennies: The deal would be known as a “tax inversion,” a fancy way of saying Burger King is planning to move across the border in an effort to avoid paying U.S. corporate tax.
The tactic is nothing new: Tax inversions have been used primarily by American pharmaceutical companies looking to cut down on taxes owed while enjoying a healthy dose of profits. The public is often none the wiser to their tactics because, unlike fast-food joints, Big Pharma brands aren’t household names, as noted by Slate’s Jordan Weissmann:
“For drug companies, these deals make perfect sense: Most arent household names, and in the end people arent going to boycott the medication they need because they sense a company lacks the requisite degree of economic patriotism.”
But other companies don’t have such a luxury many household brands have to consider the inevitable headlines when contemplating whether to move to a foreign country to avoid American corporate taxes.
It’s something Walgreens considered earlier this year when it purchased a majority stake of Alliance Boots. The company abandoned its plan for a tax inversion out of fear that American consumers would start shopping at CVS or other drugstores in protest.
Americans have way more fast-food choices than they do drug stores (McDonald’s leads the pack, with Burger King and Wendy’s fighting for a distant second). For Burger King, relocating overseas may do more harm to its reputation than it would do good for its pocketbook. According to The New York Times, Burger King already pays a corporate tax rate around 27 percent; forming a new company out of the Tim Hortons deal would only marginally lower its tax obligation.
Burger King’s frugal CEO Daniel Schwartz will take whatever extra savings he can get. The company has already started pulling its restaurants from U.S. military bases across the country and around the world as part of a cost-cutting measure stemming from a recently enacted wage requirement (something the Labor Department is re-evaluating).
Ultimately, Americans probably won’t care. Consumers already buy their gas, cars and electronics from companies that are based across the pond. You can bet other companies will be watching the Burger King tax inversion very closely to see if they, too, can pull off a similar deal without running the risk of coming off unpatriotic. Pretty soon, we could find ourselves drinking beverages from Germany and chocolate from Switzerland from brands that once called America home.
Matthew Keys is a contributing journalist for TheBlot Magazine.