Is tax behind Burger King’s move for Tim Hortons?

“I don’t like the idea of an American company buying a Canadian company – it’s our brand,” said Holly Crosgrey to the Financial Post.

But for Cosgrey, it is a reality that will have to be accepted as over the weekend the (American) fast-food retailer Burger King confirmed reports that they have entered negotiations regarding the purchase of Tim Hortons, the well-known (Canadian) coffee chain.

The amalgamated entity would be based in Canada and the two brands would be allowed to operate independently of each other.

The benefits are clear for Tim Hortons.

As they pointed out in a press release, the distinctly Canadian company would be able to call upon the presence and knowledge of Burger King when it comes to expanding outside of their traditional North American base. To compare the two, Hortons has 866 stores based outside of Canada (with the majority of those being in the United States) whilst Burger King has around 6,000.

So then, what does Burger King get in return? As cynical as it may sound their reason – at this stage – appears to be purely financial: by basing themselves in Canada they would be able to take advantage of the Maple Leaf Country’s lower rate of corporation tax, which stands at 26.5%. In America the base rate is 40%.

“[It] sounds like more of a paper transaction with the goal of lower taxes. There is no indication that these two will find any new synergy beyond financial savings which has been Burger King’s intent for the [past] four years,” noted Darren Tristano, the executive vice president of Technomic.

If the deal does go through, the joint enterprise would be the world’s third biggest fast-food/drink company in the world, accounting for a staggering $22bn in sales with well over 18,000 stores in 100 countries.

And Burger King would get to pay a little bit less in tax.

photo: efile.com