Burger King has manoeuvered to cut US tax bill for years

FE Team | Published: September 03, 2014 00:00:00 | Updated: November 30, 2026 06:01:00

LONDON, Sept 2 (Reuters) :  Burger King may have taken a lot of flack in the past week for a deal that should curb its US tax bill but in many ways it is consistent with the burger chain's aggressive tax-reduction strategies in recent years.
Some US lawmakers and other critics attacked the company that is the home of the Whopper for deciding to move its tax base to Canada from the US through its proposed purchase of Oakville, Ontario-based coffee and doughnut chain Tim Hortons . They say it will allow Burger King  to avoid paying some US taxes.
That would be nothing new. A Reuters analysis of Burger King's regulatory filings in the US and overseas, which was also reviewed by accounting experts, shows that it has been making major efforts to reduce its US tax bill for some time.
By massaging down US taxable profits while maximizing the profits it reports in low-tax jurisdictions overseas, Burger King is able to operate one of the most tax-efficient businesses in the US fast-food industry.
The Burger King rate is 30 per cent lower than the average tax rate it paid in the five years before it was bought in 2010 by private equity group 3G, still  the company's majority shareholder.
The accounting experts say the Canadian move will allow Burger King to double-down on those efforts as it will open up new tax-saving opportunities for the company. It could, for example, apply the tax structures it currently employs in major markets like Germany and Britain, and which allow the group to operate almost tax free in those places, to its business in the United States, they said.
And that could mean Uncle Sam will lose corporate tax income that Burger King would have to pay under its current structure.
"I would be surprised if in five years' time, their tax rate does not come down reasonably dramatically," said Professor Stephen Shay, from Harvard Law School, who has testified to Congress on corporate taxation.
Burger King declined to comment on its current US tax arrangements. But it has said the so-called "inversion" deal to buy Tim Hortons for $11.5 billion, and move the headquarters to Canada, was based on Canada being the combined company's biggest market. It said the deal was about international expansion - particularly of the Tim Hortons' brand and not about tax savings.
"We don't expect our tax rate to change materially. As I said this transaction is not really about tax, it's about growth," Chief Executive Daniel Schwartz said in a call with analysts last week.
It would be perfectly legal for Burger King to reduce its US tax bill through the Canadian move. Chas Roy-Chowdhury, Head of Taxation at the Association of Chartered Certified Accountants in London, said companies all over the world manage their tax bills so they don't have to pay more tax than necessary.
"If the US doesn't like inversion deals, it should change the law to prevent them. The US has a leaky corporation tax system which encourages companies to park profits offshore," he said.
Finding ways to report less income to the Internal Revenue Service (IRS) and more to overseas tax authorities is a particular focus for companies with a headquarters or big operations in the US because of the headline federal corporate tax rate of 35 per cent on profits. It is the highest headline corporate tax rate in any major developed country, and can be even higher once state and local taxes are added on. There is an incentive for companies to shift US-generated profits overseas, where rates can be very low, the experts say.
Burger King generated almost 60 per cent of its revenues in the United States between 2011 and 2013, regulatory filings show, but the chain reported just 20 per cent of its profits in the country over the period.