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Student blog - David Roth

Looking first at the Tim Hortons merger with Burger King, we can see what became of the $11.4 billion transaction. On Tuesday, Dec. 9, 2014, the shareholders of Tim Hortons approved the company being purchased by Miami, Florida-based Burger King. The two companies have since combined and formed the third largest restaurant chain, Restaurant Brands International. It is traded on the New York Stock Exchange (NYSE) and the Toronto Stock Exchange (TSE) using the ticker symbol “QSR.” Burger King CEO Daniel Schwartz is the new CEO of the company. The new company is headquartered in Canada, but both Burger King and Tim Hortons will be operated as separate businesses. Notice 2014-52 had no effect on this inversion from taking place. Despite the Treasury’s attempt to stall, if not completely dissolve this deal, the inversion was completed as scheduled. Other inversions were not so fortunate. One inversion that was much larger than the Burger King-Tim Hortons transaction was that of drug companies AbbVie and Shire. This massive inversion deal, which was worth close to $54 billion, was set up so that AbbVie could lower its tax rate, as well as access billions of dollars that are tied up overseas. Under Notice 2014-52, all of that overseas money would be taxable. The merger was officially terminated, and AbbVie will pay Shire a $1.635 billion break-up fee as a result. So what is the difference between these two mergers? One could make a case that Burger King’s acquisition of Tim Hortons was less about tax and more about strategy. In 2013, Burger King had a tax rate of 27.5 percent. Tim Hortons had a Canadian tax rate of 26.8 percent. Together, the combined entity could have a tax rate of 25 percent. Looking at Burger King’s income before taxes for 2013, which was $322.2 million, if you do the math that ends up being a little more than $8 million in tax savings. Burger King has more to gain through Tim Hortons’ strength in the fast-food breakfast division. In reality, the Tim Hortons’ acquisition should be considered smart business as opposed to “unpatriotic.” Burger King clearly has a brilliant team of tax planners that helped structure one part of an intelligent transaction.

Where will this topic take us into the future? There are a few different options that Congress could take to address this issue. First and foremost is corporate tax reform. Two major issues within the tax code are 1) the corporate tax rate and 2) the taxation of foreign-source earnings. This has long been argued by both sides of the aisle and is long overdue for change. Next is changing the corporate tax rate exclusively. As it currently stands, the U.S. tax rate is the highest among the top 15 economies of the entire world. A lower tax rate would reduce the need, and temptation, for corporate tax inversions. This would probably be the best alternative. Another potential option is to adopt a territorial tax system. Currently, the U.S. is one of only a few nations that tax the foreign-sourced income of American companies. This is a major reason for most tax inversions. With the adoption of a territorial tax system, the foreign-sourced income would not be taxed at all.

Only time will tell what will truly become of this intensely debated topic. Currently, more than three dozen congressional democrats have introduced legislation to prevent companies from performing inversions. This “slap-the-wrist” approach of solving this problem is different from republicans, who believe the core problem is the tax code and that a tax-reform bill should be brought forward. Again, only time will fix this problem. Unfortunately, it is unlikely that the answer will come during President Obama’s lame-duck session as president.


Bergin, Tom. “Burger King Has Maneuvered to Cut Tax Bill for Years.” 2 September 2014. Reuters. 10 January 2015

Cohn, Michael. “Congressional Democrats Introduce Bill to Curb Tax Inversions.” 20 January 2015. Accounting Today. 23 January 2015

Flowers, Andrew. “Burger King Might Save $8.1 Million by Moving To Canada. What’s the Whopper Equivalent? .” 28 August 2014. FiveThirtyEight. 10 January 2015

Marples, Donald J and Jane G Gravelle. Corporate Expatriation, Inversions, and Mergers: Tax Issues. Congressional Report. United States Congress. Washington D.C.: CRS, 2014.

Maze, Jonathan. “Tim Hortons shareholders approve acquisition by Burger King.” 9 December 2014. Restauant News. 12 January 2015

Soloman, Brian. “Inversion Implosion: AbbVie-Shire Merger Officially Dead.” 20 October 2014. Forbes. 23 November 2014

Tim Hortons. “The Story of Tim Hortons.” Tim Hortons. 20 January 2015

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