Recent announcements of American tax inversions have produced a flood of hollow rhetoric. On August 25, Florida-headquartered Burger King Worldwide confirmed it is in talks to buy Ontario-based Tim Horton, sparking outrage.
Burger King, however, denies that the transaction is structured to avoid America corporate taxes, insisting the deal is conceived to leverage both companies’ growth in international markets, and expand their footprints. (Actually, both companies have similar effective tax rates of about 27%.)
The tax inversion battle has been brewing for several years, with 22 deals consummated since 2011, mostly in pharmaceutical industries. Basically, a multinational buys a firm in a tax-friendlier jurisdiction, merges, renounces it US corporate citizenship and declares a new domicile.
The moves are prompted by the level of American corporate taxes, which are the loftiest in the Organisation for Economic Cooperation and Development, levied at 35 per cent or even higher, including state and federal bites. Some headline transactions have included AbbVie’s bid to buy UK-base Shire, lowering its rate from 22 per cent to 13 per cent; takeovers by Medtronic and Mylan; and an aborted offer by Pfizer.
A couple of ridiculous reactions:
- Obama described the inversions as “an unpatriotic loophole” and Treasury Secretary Jack Lew called for “a new sense of economic patriotism.”
- Ohio senator Sherrod Brown encouraged consumers to boycott Burger King, in favour of fast food rivals Wendy’s or White Castle.
It is nonsensical to equate legal tax avoidance with patriotism, just because American dollars are flowing abroad. On the same basis, politicians might direct Americans to eschew foreign goods or services altogether – leading to trade wars! Corporations owe their duties to upholding current shareholders’ interests, while politicos should focus on lowering corporate tax rates toward a level playing field.
To promote a partisan burger boycott is plain silly. Few diners at fast food franchises know or care about multinational tax strategy, although they rightly care about food safety issues, taste and good value. Loyal burger buffs probably embraces a bigger truth in any case, since the Congressional Joint Committee on Taxation has estimated that inversion revenue losses would still only represent $2 billion over the next decade – a tiny drop of American federal budgets.
Vanessa Drucker is the American editor of Fund Strategy magazine