Canada’s iconic coffee and doughnut chain Tim Hortons may be on the verge of being acquired by Burger King in an attempt by the American company to move headquarters to a lower-tax country, the Miami-based burger giant confirmed in a statement Sunday.
The merger would prompt the creation of a new publicly listed company with headquarters in Canada. If the deal moves ahead, Burger King majority owner, 3G Capital, would be the majority shareholder of the new company and the rest of the shares would be held by the existing Burger King and Tim Hortons shareholders.
No specific date has been scheduled and both companies have stressed that the deal has yet to be signed, sealed and delivered. However, if the merger becomes successful then it would establish the third-largest fast-food company in the world that would generate approximately $22 billion in sales and maintain roughly 18,000 restaurants in about 100 countries.
“Tim Hortons and Burger King each have strong franchisee networks and iconic brands that are loved by their respective consumers,” stated the companies. “Any transaction will be structured to preserve these relationships and deepen the connections each brand has with its guests, franchisees, employees and communities.”
Tim Hortons is based in Oakville, Ontario and opened its very first restaurant 50 years ago. It first merged with Wendy’s in 1995 to assist in its expansion plans into the U.S., which hasn’t exactly been a success. The coffee giant has established more than 3,600 restaurants in Canada and the U.S. and controls roughly two-thirds of the coffee market in the Great White North.
The new company would be part of a tax inversion measure that would allow it to increase its tax savings on foreign earnings. The corporate tax inversion loophole has angered numerous public officials and even some corporate giants who say corporations participating in this scheme are hurting the United States.
We reported that president Obama stated in an interview last month that his administration is trying to make the rules stricter and argued that corporations are “gaming the system” and refusing to do the right thing for their country.
“There are a whole range of benefits that have helped to build companies, create value, create profits,” Obama said. “For you to continue to benefit from that entire architecture that helps you thrive, but move your technical address simply to avoid paying taxes is neither fair nor is it something that’s going to be good for the country over the long term.”
Treasury Secretary Jack Lew published an op-ed piece in the Washington Post late last month and urged Congress to close the loophole. He presented the case that these businesses are taking advantage of the benefits of basing operations in the U.S., but lambasted them for not being fair.
“For all these reasons, I call on Congress to close this loophole and pass anti-inversion legislation as soon as possible. Our tax system should not reward U.S. companies for giving up their U.S. citizenship, and unless we tackle this problem, these transactions will continue,” wrote Lew. “Closing the inversion loophole is no substitute for comprehensive business tax reform, but it is a necessary step down the path toward a fair and more efficient tax system, and a step that needs to be in a place for tax reform to work.”
Corporate tax inversions may be a political hot topic this election season.
