By: Dale Weckbacher
Matthew 22:21
And He said to them,
"Render therefore to Caesar the things that are Caesar's, and to God the
things that are God's."
NKJV
For those not wishing to pay taxes, this verse may be bad
news for God does want His people to pay their taxes. However, the verse tells us to render unto
Caesar what is Caesars but also unto God what belongs to God. Yes, God does want us to pay our taxes but He
does not require us to pay more than the law requires. Finding legal ways to pay less in taxes is
not going against God’s Word and is something I as an accounting and tax
professional advise people to do. Even
though it is August and taxes are the furthest thing from most of our minds,
taxes were a whopper of a topic in this week’s news.
Inversion is a process where a business headquarters outside
of a country in order to avoid high taxation.
(1) Recently the process has been occurring with
increased frequency as companies seek to maximize profits in the current
economic climate. Liberals view
companies that engage in the process as lacking “economic patriotism.” I guess these anti-capitalist liberals would
prefer companies cut jobs and profits in order to pay higher taxes instead of
inverting so they can continue to provide jobs and cheaper products for the
customers. (2)
Listening to these anti-capitalist liberals one would
believe that Burger King will be continuing to do business in the United States
but will avoid paying any U.S. income tax.
However, this is not true and the reason for their merger with Tim
Hortons has other benefits for both companies besides taxation. If we take the time to look at the bigger
picture, we can gain an understanding of what is going on with this
merger.
If Burger King follows through on its intentions to relocate
its corporate offices to Canada, it will become a foreign corporation doing
business in the United States. This does
not excuse the corporation from paying U.S. Income Taxes on income it generates
from its U.S. operations for foreign corporations doing business in the United
States are required to file form 1120F with the IRS. (3) On this form, the corporation declares its
income from operations within the United States and pays the appropriate
taxes. I am not familiar with Canadian
tax law but they may qualify for tax credits in Canada to help pay their U.S.
tax liability, which would be a tax benefit for the corporation but would not
reduce tax revenues received by the U.S. Treasury. The only possible reduction in tax revenues
to the United States would be that Burger King would no longer pay payroll
taxes for its employees working at the relocated corporate offices since they
would no longer be working in the United States but in Canada.
Since Burger King Restaurants are franchise operations, the restaurants
are actually privately owned businesses whose owners are required to claim
their income on either their individual tax return or corporate return if they
are incorporated. (4) The Burger King Corporation does not receive
any direct profit from the sales of Whoppers and has never been required to
claim these profits on its corporate tax return for these belong to the owner
of the franchise. The Burger King
Corporation, however, does receive revenue from franchise fees paid by
franchise owners. However, since
franchise fees received from U.S. based franchises are part of its U.S.
operations, the corporation will be required to pay U.S. income taxes on these
fees. However, as Ben Shapiro wrote in
his August 27 article (2) ,
the potential tax savings incurred from potential Canadian tax credits and
reduced payroll taxes for corporate employees will enable the corporation to
keep its franchise fees at their current level thus potentially saving
franchises and the jobs and tax revenues they create in the U.S.
However, tax savings are only one consideration in the
merger of Burger King and Tim Hortons. Tim
Hortons, considered the Dunkin Donuts of Canada, represents a great acquisition
for Burger King. Because of this
acquisition, Tim Hortons will expand into the United States and be able to
compete with Dunkin Donuts and Krispy Kreme.
(5) Upon completion of the merger, consumers will
be able to go to a U.S. Burger King and purchase a Tim Hortons coffee and donut
with their breakfast sandwich. In Canada,
they will be able to visit a Tim Hortons and purchase a Whopper with their
coffee and donut.
In addition, one of the benefits in a merger is the
consolidation of corporate operations.
One of the decisions the newly formed merged corporation must make is
where to locate their corporate operations.
When the two corporations have corporate headquarters in two different
countries, anyone with any business sense would expect them to locate corporate
operations in the country with the lower tax rate, which is what Burger King is
proposing to do.
For those still not convinced that Burger King is making the
best decision for their business, and who intend to boycott Burger King, I want
you to remember you are not actually boycotting
the Burger King Corporation but the independent franchise. The only persons you will be punishing are
the person that waited on you at the window and the franchise owner who
provides jobs and pays taxes in your local community. The answer to stopping corporate inversions
outside the United States is for the United States to lower its corporate tax
rate and become competitive in the global market place.
Even after inversion, Burger King will still be rendering
unto Caesar what belongs to Caesar for what they are doing violates no current
tax laws. The question is will the
United States government do the wise thing and reduce its corporate tax rate
lessoning the incentive for corporate inversion outside the United States or
pass some law taxing corporations that choose to invert thus requiring them to pay
higher taxes leading to the cutting of jobs in the U.S. and closure of some
franchise operations.
1. Investopedia. Corporate Inversion. www.investopedia.com.
[Online] Investopedia. [Cited: August 29, 2014.]
http://www.investopedia.com/terms/c/corporateinversion.asp.
2. Shapiro, Ben.
DOZENS OF BUSINESSES MOVE HQS OUTSIDE AMERICA UNDER OBAMA. www.breitbart.com.
[Online] Breitbart News, August 27, 2014. [Cited: August 29, 2014.]
http://www.breitbart.com/Big-Government/2014/08/27/businesses-move-inversion.
3. Internal Revenue
Service. Instructions for Form 1120-F. www.irs.gov. [Online] U.S.
Treasury. [Cited: August 29, 2014.] http://www.irs.gov/pub/irs-pdf/i1120f.pdf.
4. Franchise Direct.
Burger King Franchise Cost & Fees. www.franchisedirect.com. [Online]
Franchise Direct. [Cited: August 29, 2014.]
http://www.franchisedirect.com/foodfranchises/burger-king-franchise-07118/ufoc/.
5. Ferdman, Roberto
A. Tim Hortons makes more money than Burger King and Dunkin’ Donuts,
combined. www.washingtonpost.com. [Online] The Washington Post, August
26, 2014. [Cited: August 29, 2014.]
http://www.washingtonpost.com/blogs/wonkblog/wp/2014/08/26/tim-hortons-makes-more-money-than-burger-king-and-dunkin-donuts-combined/.