New York Post: Burger King deal must be stopped
The attempt by Burger King to escape billions in taxes by taking over Tim Horton’s donut chain and opening a Canadian head office should be stopped.
These deals — tax loopholes known as inversions — have been going on for some time.
But this is the most high profile and, if allowed, will create a tsunami that will cost American taxpayers staggering sums.
Also galling: Canada’s federal corporate income taxes are nearly half of America’s — which would not be possible if Canada spent as much on its military and peacekeeping budget as do most other allies.
According to the World Bank, the US spends 3.8% of its GDP on defense and peacekeeping, Britain 2.63%, France 2%, Australia 1.6% and Canada 1%— down from 1.4% in recent years.
I happen to be a taxpayer and citizen of the US and Canada, and while I believe the Pentagon should cut its budget, I also believe that Canada should pony up more to keep the world, and itself, safer.
If Canada matched Australia’s military and peacekeeping commitments, it would allocate another $10.8 billion a year.
This is roughly the difference between what Canada collects in corporate taxes and what it collected before it cut them dramatically.
That aside, the culprit here is certainly not Canada. This trick may be within the letter of US law, but certainly not within its spirit — which President Obama recently addressed,
“They’re basically renouncing their citizenship and declaring that they’re based somewhere else, just to avoid paying their fair share,” he said.
He’s also derided such companies for lacking “economic patriotism.”
Interestingly, Berkshire Hathaway billionaire Warren Buffett is helping finance the $11.4 billion Burger King Worldwide takeover of Tim Horton’s. Buffett hasn’t commented, but in 2012 he said that lower-income Americans, like his secretary, bear too much of the nation’s tax burden.
This audacious move by Burger King’s owner, a Brazilian investment fund, is of concern because it’s going to create a flurry of deals and a hemorrhage of tax revenues because of the company’s high profile. That’s why hints by the US Treasury secretary this week that inversions will be prohibited better be executed soon.
But there’s another, greater tax game going on. Taxes owed on $1.95 trillion of untaxed — and taxable — profits kept abroad by major US corporations may never be paid. This is due to a loophole that allows them to accumulate funds tax-free until they repatriate the money.
In a country where draconian tax laws apply to individual taxpayers, this is shocking.
Washington requires any American, wherever they live or earn money, to pay US taxes every year on his or her income worldwide or face excessive legal harassment and jail.
Put another way, American citizens must pay their taxes. Companies, especially big ones, don’t have to.
Burger King is simply the latest whopper. Two other gigantic inversions by pharma giants Pfizer and AbbVie involved “moving” to Britain, where taxes are 21%, but where billions in cash can remain stashed.
By becoming “British” and using untaxed offshore money to buy assets, they never have to repatriate the funds and pay taxes.
This is like letting an American taxpayer marry someone living in a tax haven and never pay taxes again.
Such games have already created gaping holes in federal and state budgets and, unless impeded, will get a whole lot worse. Apple, Google, Microsoft and other multinationals discover ways to duck or evade taxes all the time, short of moving the head office.
Apple, for instance, sits on a $150 billion pile of money offshore but borrowed billions of dollars to buy back shares from shareholders.
Why would it do that instead of using its savings? Because repatriating the money offshore to buy back shares would mean paying taxes.
Instead, borrowing back home allows the borrowing costs to be written off against domestic profits to reduce domestic taxes.
Earlier this month, Walgreens announced it would not go through with a planned inversion. That decision alone results in $4 billion in taxes that will be paid to the US government this year.
Clearly, Congress and the president must act. By closing loopholes, corporate rates could be lowered for everyone. But as things currently stand, tax rates remain higher than in other countries because of these very avoidance techniques.
Those who support the status quo argue that tax breaks encourage corporations to globalize and must be used because boards of directors must seek lower taxes as part of their fiduciary obligation to act in the best interests of their shareholders.
But the president, Congress and state governors have overriding fiduciary obligations to their shareholders — who happen to be all of the nation’s taxpayers.