Critics are slamming Burger King Worldwide Inc.'s announcement it is buying Canadian food chain Tim Hortons Inc. and moving its headquarters to Canada as a tax-dodging move enabled by a tax code that "treats corporations better than people."
The tax loophole at issue is called a "corporate inversion." As Dave Johnson explains at Campaign for America's Future blog, it
is when a US company buys or merges with a non-US company, and then pretends it is no longer a US company. Today it’s Burger King. Not long ago it was Walgreens.
Even though an inverted company has renounced its US citizenship, the company keeps the same executives, the same stores or facilities, the same employees, and the same customers — right here in the US. The only things that changes is the company sheds certain tax obligations. The company still receives all the benefits of US roads and infrastructure, police and fire protection, courts, military protection, and the rest. The US still educates its workforce and subsidizes its ultra-low wages with food stamps, Medicaid, and other available government services.
"If a person did that," Senator Elizabeth Warren (D-Mass.) said in July, "we’d call them a freeloader. We ’d insist they pay their fair share. And that’s exactly what our tax laws do for people who renounce their American citizenship."
"Corporations can renounce their American citizenship," she continued, "and not suffer any consequences. In this corner of the tax code, we’ve gone way past treating corporations like people. In this corner of the tax code, we’re treating corporations better than people."
Warren was among a trio of senators, which also included Dick Durbin (D-Ill.) and Jack Reed (D-R.I.), that sent a letter to President Obama this month urging him to take action to discourage such corporate inversions.
Following news of the Burger King/Tim Hortons $11 billion merger, which got $3 billion in financing help by billionaire Warren Buffet, Durbin issued a statement criticizing the inversions for letting corporations dodge taxes and shifting the burden onto regular taxpayers.
“With every new corporate inversion, the tax burden increases on the rest of us to pay what these corporations don’t. That burden is made worse when these corporations profit off of all the public benefits that help American companies succeed and then run from their U.S. tax responsibility," he stated.
Also stressing the widespread problem of corporate inversions is James S. Henry, senior fellow at the Columbia University Center for Sustainable International Investment and senior adviser with the Tax Justice Network, who stated Wednesday, “It’s been tech companies and pharmaceutical companies that have lead the charge on these schemes. Apple last year off shore revenue paid 1 percent in taxes — they funnel their profits through their Irish subsidiary and then through the Bahamas. GE’s effective tax was zero."
“So these companies do business in the U.S., they benefit from the airports, hospitals, police, fire, education. The rest of us pay for the military. Some of them are even federal contractors — they don’t pay taxes but they make money directly from our national coffers."
The blame for this growing issue, Henry added, is linked to the tremendous corporate influence on politics.
“This is being driven by the fact that the corporate lobby doesn’t discriminate," he stated. "Both establishment parties have been on the take and that’s why you have so little leadership on this issue.”