Burger K-inversion-ing

by pdxblake

In case you are interested in my perspective on Burger King’s tax inversion and corporate taxes more generally, I am sharing something I wrote on a friend’s Facebook post.   It’s the laziest of all blog posts, the copy-and-paste: 

Burger King has more of a business reason than most of the pharmaceutical companies that more commonly use inversions. Tax arbitrage arises because laws are too rigid so unless we can convince other countries to adopt worldwide tax systems too, there will remain an arbitrage opportunity open for companies to use. Whether or not we approve of it is not relevant to whether it gets used.

Consider BK: It gets 60% of its revenue from the US and Canada, so probably ~45% (assuming US 10x bigger than Canada) from foreign sources. From what I have read from people who don’t take a particularly political angle on this, even proposed anti-inversion legislation wouldn’t stop this particular merger and since it offers the opportunity to not pay US taxes on the profits generated from nearly half of its revenue, the tax arbitrage opportunity will be more tempting than any argument in opposition.

That is not to say that tax arbitrage doesn’t have real consequences: a dollar avoided by Burger King will have to be raised elsewhere. Given the wide disparity on tax rates between companies that have large business outside of the US and those that don’t (signaling effective shifting of taxes offshore) maybe it would be better to find a way to more evenly tax the business income for US generated profits while blocking more explicitly schemes that have no business purpose but are used just to avoid paying taxes (like Apple’s and pharma companies’ efforts to shift IP-related earnings offshore for products designed and sold in the US but “using” patents owned by offshore vehicles).

But, what we are doing now seems like the worst of both worlds and given the GOP opposition to doing anything that increases revenue, even to offset the impact of lowering the statutory rate, it probably has to wait until the GOP self-destructs a little more decides that compromise is not treason.

Here’s something I wrote 2+ years ago about some research quantifying the effect of eliminating the current system if it is not done to block shifting income offshore solely for tax arbitrage purposes.