BK's Big Deal Could Bring The King To Canada, Controversy Close Behind

Burger King is buying Tim Hortons, the Canadian coffee-and-donut chain, in a deal valued at $11 billion. The new company will be headquartered in Ontario, Canada, allowing Burger King to take advantage of Canada's lower corporate tax rate. The relocation is bound to cause controversy in the U.S.

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How much would you pay for some Canadian coffee and doughnuts? Burger King thinks $11 billion sounds about right. The company is buying the Ontario-based chain Tim Horton's. And the new company will be based in Canada, making a whopper of a difference for Burger King's tax bill. Here's NPR's Jim Zarroli.

JIM ZARROLI, BYLINE: The deal is being carried out as what's called a corporate inversion - something that's being used by more and more companies to reduce their U.S. tax burden. The CEO of Burger King Worldwide, Dan Schwartz, insisted today that the merger is being carried out because it makes good business sense and not for tax considerations.

DAN SCHWARTZ: We don't expect our tax rate to change materially. As I said this transaction's not really about tax. It's about growth.

ZARROLI: But Geoffrey Loomer, assistant professor at Dalhousie University in Nova Scotia says it's fanciful to think the deal won't cut Burger King's tax bill. He says it's not just that Canada's corporate tax rate is lower...

GEOFFREY LOOMER: It's more about the treatment of foreign earnings.

ZARROLI: Loomer says unlike other developed countries, the United States taxes its companies on the profits they make overseas. And Burger King, which has restaurants in more than a hundred countries, makes a lot of money overseas. But, Loomer says, Canada doesn't tax foreign earnings.

LOOMER: As long as the income is active business income - and running a Burger King restaurant in Hong Kong would be active business - you can bring that money back to the Canadian parent company with no further tax.

ZARROLI: The move is likely to intensify the debate over inversions which have been roundly criticized by the White House and some members of Congress.

One irony of the merger is the involvement of billionaire Warren Buffett who will contribute $3 billion in financing toward the deal. Buffett has become a big critic of the U.S. tax code, arguing that it's unfairly skewed toward the rich. Buffet's company is based in Nebraska so it will still have to pay U.S. taxes on the money it makes from Burger King, but the company he's investing in is likely to benefit from a controversial tax maneuver that critics say can only erode the U.S. tax base. Jim Zarroli, NPR News, New York.

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