With tax inversions, by reincorporating overseas and turning the
foreign subsidiary into the “parent” company, at least on paper, the
company is free to use its offshore cash however it wants without having
to pay U.S. corporate taxes on the money. Private equity companies have
a history of domiciling portfolio companies that do most of their
business in the U.S. in the Cayman Islands or other tax havens.
So it may not be surprising that it is Burger King BKW 3.16% , which was formerly private equity- owned and whose major shareholder is still the PE firm 3G Group, whose massive tax inversion deal breaks this mold. Most tax inversions involve a large U.S. multinational acquiring a small subsidiary, but Burger King and Tim Horton’s are both multi-billion dollar businesses with similar market capitalizations. Most tax inversions have been motivated by a desire to bring offshore profits back to the U.S., but Burger King doesn’t have much in the way of profits parked offshore.
Burger King executives have defended the deal by saying that plans to expand globally is what’s driving the deal rather than tax considerations, but tax experts are skeptical of this explanation. It seems the company just wants to pay lower taxes. In any case, if the deal is not met with customer resistance as Walgreen’s now-abandoned tax inversion plan was, it could lead other multinationals that directly serve consumers to renounce their U.S. citizenship to reduce their taxes.
This may be legal, but that doesn’t mean that it’s right. The corporate defense that companies need to do what’s best for their shareholders and take advantage of every loophole in the corporate tax code rings hollow when these companies employ an army of lobbyists to make sure that the tax code is riddled with loopholes.
Public outrage at the recent spate of tax inversions by high-profile multinationals that want to shift profits earned in the U.S. overseas to reduce their tax bill may finally overcome the clout of corporate interests and lead to action by Congress to limit the opportunities for engaging in this tax avoidance scheme. Treasury and the IRS are also considering measures to discourage tax inversions by making earnings ‘stripping’ illegal and eliminating some of the benefits of such deals.
Even before the Burger King deal was announced, the Congressional Joint Committee on Taxation estimated that the potential tax revenue the Treasury would lose to tax inversions over the next 10 years could amount to $19.5 billion. If not stopped soon, lost tax revenue from tax inversions may mount much higher. The country faces an urgent need to stop corporate inversions. This is one tax loophole that Congress should move quickly to close.
Read more: Is Burger King’s move to Canada a raw deal for U.S. taxpayers?
So it may not be surprising that it is Burger King BKW 3.16% , which was formerly private equity- owned and whose major shareholder is still the PE firm 3G Group, whose massive tax inversion deal breaks this mold. Most tax inversions involve a large U.S. multinational acquiring a small subsidiary, but Burger King and Tim Horton’s are both multi-billion dollar businesses with similar market capitalizations. Most tax inversions have been motivated by a desire to bring offshore profits back to the U.S., but Burger King doesn’t have much in the way of profits parked offshore.
Burger King executives have defended the deal by saying that plans to expand globally is what’s driving the deal rather than tax considerations, but tax experts are skeptical of this explanation. It seems the company just wants to pay lower taxes. In any case, if the deal is not met with customer resistance as Walgreen’s now-abandoned tax inversion plan was, it could lead other multinationals that directly serve consumers to renounce their U.S. citizenship to reduce their taxes.
This may be legal, but that doesn’t mean that it’s right. The corporate defense that companies need to do what’s best for their shareholders and take advantage of every loophole in the corporate tax code rings hollow when these companies employ an army of lobbyists to make sure that the tax code is riddled with loopholes.
Public outrage at the recent spate of tax inversions by high-profile multinationals that want to shift profits earned in the U.S. overseas to reduce their tax bill may finally overcome the clout of corporate interests and lead to action by Congress to limit the opportunities for engaging in this tax avoidance scheme. Treasury and the IRS are also considering measures to discourage tax inversions by making earnings ‘stripping’ illegal and eliminating some of the benefits of such deals.
Even before the Burger King deal was announced, the Congressional Joint Committee on Taxation estimated that the potential tax revenue the Treasury would lose to tax inversions over the next 10 years could amount to $19.5 billion. If not stopped soon, lost tax revenue from tax inversions may mount much higher. The country faces an urgent need to stop corporate inversions. This is one tax loophole that Congress should move quickly to close.
Read more: Is Burger King’s move to Canada a raw deal for U.S. taxpayers?
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