Burger King’s (BKW) acquisition of Tim Hortons (THI) will make it the third-largest restaurant chain in terms of market capitalization, after McDonald’s (MCD) and Yum! Brands (YUM). The new company will have over 18,000 restaurants across 100 countries and about $23 billion in system sales.
Burger King will fund this $12.5 billion acquisition through a combination of debt and preferred equity. Click here to read more.
Barack Obama has called tax inversions “unpatriotic,” according to Bloomberg. Let’s take a look at this deal from a tax savings perspective.
Over the five-year period starting in 2009, Burger King’s effective tax rate has been as high as 34.3% and as low as 23.2%. In the financial year ended 2013, Burger King’s effective tax rate was 27.5%.
McDonald’s had an effective tax rate of 31.9% and Yum! Brands had an effective tax rate of 31.4% as of the financial year ended 2013.
U.S. versus Canadian tax rates
Taxes for U.S. companies can go as high as 40%, which includes federal taxes of 35% along with state and local taxes, according to International Tax Review.
Corporate federal taxes in Canada can range from 11% to 15%, and provincial taxes can range from 0% to 16%, according to Deloitte. This gives a range of 11% to 31% for corporate taxes, which is still lower than what a corporate establishment may end up paying in the U.S.
As for Burger King, its effective tax rate of 27.5% in 2013 was just 1% more than the tax rate of 26.5% that’s a combination of the 15% federal tax rate and 11.5% provincial tax rate in Ontario, the new home for Burger King in Canada.
Burger King will still pay U.S. taxes
Burger King, however, will still be liable to pay taxes on its earnings from U.S. operations. By shifting its base from the U.S., Burger King won’t have to pay taxes on income from overseas earnings, according to an economist with the Tax Foundation.
Burger King Worldwide, Inc., is also a part of exchange-traded funds (or ETFs) like the Consumer Discretionary Select Sector SPDR Fund (XLY).