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Cracking down on tax inversion with Tim Hortons and Burger King

by
Jason Feist
on
11/11/2014
Cracking down on tax inversion with Tim Hortons and Burger King

In recent news, fast food giant Burger King made a recent deal to buy out the successful Canadian food chain Tim Hortons. The deal would make Burger King the world's third-largest fast food company in the nation; however, our president is working to crack down on such schemes because it is what we call a tax inversion deal. 

Tax inversion deals are when a US company acquires or sets up a foreign company and uses that foreign company to pay less tax. The movement of its headquarters to Canada results in Burger King paying a combined tax rate of 26.5%, compared to the United States'corporate tax rate, which is a whopping 35%. Countries like Canada and Ireland are hot spots for companies seeking inversions due to their lower tax rates. The Obama administration has recently stepped in and is trying to prevent tax inversion deals from occurring. Tax inversions are even more popular within the drug industry, Pfizer being the most notable and the most recent company to cut such a deal. The New York based company was considering merging with UK-based AstraZeneca for $120 billion. Other pharmaceutical and medical device companies are jumping on the bandwagon as well. 

Just a few months ago, the IRS and US Treasury enacted tighter tax inversion laws to discourage US companies from moving their headquarters overseas. Some of the notable changes include strengthening the requirement that foreign shareholders own at the minimum 20% of the merged firm's stock, doing away with the practice of reducing a company's size before inverting and closing other loopholes that enable inversion situations. 

Why not target the real issue with inversion schemes and nip it at its bud? The outrageous 35% US business tax rate, which was enacted in 1993, gives no company incentive not to look into inversion deals. Until this rate is brought down, Congress needs a way to provide corporations with an incentive to stay. Only time will tell.  

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Jason Feist

Jason Feist

Jason Feist hails from Ohio and graduated with honors from the University of Cincinnati where he holds a bachelor's degree in accounting. He has a combined 15 years of financial and accounting experience and for the last 7 years he has been the Managing Partner of Empowered Insights - a pioneer in the accounting industry. The mission of Empowered Insights is to be one of the leading firms enriching peoples lives and growing businesses. They specialize in tax preparation, business accounting and consulting.

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