With Burger King planning to relocate there after completing its buy of coffee-and-donut chain Tim Hortons for about $11.4 billion, Canada is emerging as the latest tax haven for U.S. firms fleeing a high tax code at home, according to a Bloomberg report.
Despite likely objections here to the latest tax inversion deal, Canada is setting out a welcome mat for the newest American corporate transplant. It’s also inviting others to follow. Having slashed its tax rates by about a quarter the past eight years, Canada has no problem with U.S. firms seeking tax shelter there. They like it and see it as being good for business.
The incentive for U.S. firms to set up shop in Canada is that the government only taxes corporate income generated within the country’s borders, the Bloomberg story noted. That’s in marked contract to the situation in the United States, where profits earned by an American firm’s foreign operations are taxed if if they’re repatriated.
“The real bang for the buck here is potential tax savings on Burger King’s non-U.S. earnings,” Alex Edwards, an assistant professor at the University of Toronto’s Rotman School of Management, told the news service. “It’s not just the earnings in Canada, it’s the earnings everywhere in the world that might be able to escape that second layer of U.S. tax.”
After the Burger King-Tim Hortons deal was made public, White House spokesman Josh Earnest reportedly denounced the tax inversions, according to Bloomberg. In July, President Obama called on Congress to draft legislation that would temporarily halt the exodus of America companies he sees as fleeing to foreign countries to escape paying higher taxes.
Under Canada’s previous government, the country began in 2001 to cut its corporate tax rate, says Bloomberg. Prime Minister Stephen Harper further lowered the rate to 15% in 2012. U.S. based corporations typically pay an effective tax rate of 35%.
Photo by National Film Board of Canada