Was Burger King Right for Ditching the U.S.?
Burger King, the longstanding fast food burger joint and home of the Whopper, has officially become a Canadian company. The move to the land of Wayne Gretzky, curling, and poutine was finalized recently when Burger King completed its merger with Tim Horton’s, a Canadian coffee and doughnut chain not too long ago. The move has earned the company a huge amount of backlash from those calling it what it likely is: a tax inversion.
But guided by the need to look after its own interests, is Burger King really behaving that badly?
There are mixed estimates as to how much Burger King could actually end up saving as a result of its nationality switch, ranging anywhere from several million to more than a billion dollars. Because these savings amount to a loss of tax revenue for the U.S. government, groups like Americans For Tax Fairness (AFTF) are feeling particularly charbroiled over Burger King’s decision to move north. AFTF estimates that Burger King will save at least $400 million from the move.
“Burger King and its largest shareholders could dodge between $400 million and $1.2 billion in U.S. taxes over the next four years,” reads an AFTF report on the issue. “At the same time, U.S. taxpayers provide an estimated $356 million a year — $1.4 billion over four years — subsidizing Burger King’s low pay and meager benefits through public assistance programs.”
It’s that final part, the fact that taxpayers will continue to subsidize Burger King’s corporate operations, that really has people up in arms. While Burger King has been in business for 60 years now, and built its business in America, the company doesn’t seem keen on paying back into the system. After all, Burger King’s owners built their business on the backs of the U.S. public — using publicly-educated employees, public infrastructure to transport goods, and public support programs for their low-wage workers — so shouldn’t they show at least a small amount of economic patriotism?
The answer, it appears, at least in the eyes of Burger King’s management and investors, is a resounding “no.”
The restaurant fired back at the AFTF report, saying: “The analysis in the report is materially flawed and the figures do not accurately represent our facts and circumstances. As we’ve said all along, this transaction is driven by growth, not tax rates. Going forward, we do not expect our tax rate to change materially.”
If not taxes, then…
So, if Burger King didn’t do this for tax reasons, then why did the company do it? The opacity of Burger King’s decision is part of what has agitated so many people. Cost saving is the sausage of the business world — everybody wants it, but nobody wants to know how it’s done. Faced with the same choice, on an individual level or with your own private business, would it really be wise to turn down the opportunity?
It’s in posing this kind of question where things get a bit murky. On one hand, Burger King’s success over the decades has hinged on the strength of the U.S. economy and on the regulatory infrastructure maintained by the American government. On the other hand, Burger King is a business just like any other, and presumably its only purpose is to generate profits for its owners and shareholders. Really, doesn’t the Burger King brass have a responsibility to move the company to Canada if their job is provide the biggest return on investment for shareholders?
Or does Burger King have a responsibility to be economically patriotic?
The honest truth of the situation is that America’s corporate tax laws and environment have become so muddled and backward that companies are looking at jumping the border, even if it does cause some outrage among consumers. In Burger King’s case, would you rather have a blip in the news cycle, in which some of your customers go after you on social media, or save a billion dollars in taxes? Burger King made their decision, and others will follow.
It’s a strange situation to be in, but Burger King’s management made the choice to pull the trigger. The move may be controversial with the general public, but the decision is consistent with Burger King’s responsibility to its shareholders.
Follow Sam on Twitter @Sliceofginger