For Burger King, following its own slogan to “be your way” apparently means relocating to Canada as a tax dodge.
Is that a cheap shot? Maybe. But the fact that it was so easy points to why the latest corporate inversion should mark an inflection point in the public debate on the issue. The burger chain’s acquisition of Canadian coffee-and-doughnut purveyor Tim Hortons (THI), first reported Sunday afternoon by the Wall Street Journal, is the latest in a summer-long parade of proposed tie-ups by American companies looking to ease their tax burdens by exporting their headquarters.
Unlike most of its itchy-footed forebears—huge but relatively anonymous outfits in the health care space—Burger King (BKW) is an iconic American brand. If it decamps north in part to take advantage of Canada’s 26.5 percent corporate tax rate, the franchise can expect to be fodder for late-night comedians. And as a punch line, it would serve as precisely the sort of high-profile case study that opponents of the practice need in order to push policy changes in Washington. “If Burger King goes forward with this, they’re going to risk becoming the poster boy for inversions in this election season,” says Frank Clemente of Americans for Tax Fairness, which is rallying to crack down on the maneuver, “and it’s a very potent electoral issue.”
That’s so far unproven, since the phenomenon hasn’t surfaced yet as a flashpoint in any Congressional contests. But Clemente’s group got to run something of a fire drill earlier this summer when Walgreen (WAG) moved to use its $16 billion acquisition of a European drugstore chain to shift its headquarters to Switzerland, shaving an estimated $4 billion off its American tax liability over the next five years. Americans for Tax Fairness joined with other lefty groups to stage protests outside a flagship Walgreen store in Chicago and collect some 300,000 signatures for an online petition demanding the company stay put. The chain swiftly knuckled under. In announcing that Walgreen was abandoning its plan to quit the U.S., CEO Greg Wasson pointed in part to the public backlash. Its status as “ an iconic American consumer retail company with a major portion of its revenue derived from government-funded reimbursement programs” placed it in a different category from the medical device and drug makers that had so far blazed the trail, Wasson said.
Burger King faces the same sort of reputational risk. Clemente says if his group can establish that the fast-food giant stands to save majorly on its tax bill by inverting, it will once again work to gin up grassroots pushback. Though the debate around the tax avoidance scheme has remained relatively wonky this summer, one recent poll showed it registering popularly to a surprising degree, with roughly half of respondents declaring themselves familiar with it and two-thirds registering disapproval with the notion. And while earlier movers, like Chicago-based drugmaker AbbVie (ABBV), can draw on significant investments in their own political muscle to tamp concern from elected officials, Burger King’s Beltway presence is practically nonexistent. McDonald’s (MCD), for example, reported spending $2.3 million lobbying in Washington last year; Burger King spent $80,000.
All that adds up to a potent opportunity for Democrats who see an opportunity to spin the debate into a campaign issue. But the question remains what will come of it back in Washington. The Obama administration maintains it will end-run Congress if lawmakers fail to agree on a way to stanch the tide. Officially, Treasury is still “reviewing a broad range of authorities” for what it can do and urging lawmakers to adopt a fix that reaches back to include any deals announced since May. While Sen. Orrin Hatch (R-Utah), the top Republican on the tax-writing Senate Finance Committee, has signaled a willingness to negotiate, he opposes a retroactive solution, and House Republicans aren’t eager to tackle it either. Clemente sees an opening for lawmakers to attach a solution to a bigger package extending tax breaks for businesses likely to pass in a post-election lame duck session.
Other Congressional watchers see the exits remaining open until Members of Congress tackle broader corporate tax reform, a project that won’t start in earnest until at least next year. “From a practical perspective, for this to mean anything, it would have to be retroactive, and I can’t see Republicans agreeing to that,” says Antonia Ferrier, formerly a Republican staffer on the Senate Finance Committee. “This is really hard policy.”
The Burger King deal is primed to scramble the public debate over corporate inversions. Getting this Congress to do anything meaningful about it, however, remains a tall order.