Tim Hortons agrees to Burger King offer for $94 a share | Hacker News Reader

Tim Hortons agrees to Burger King offer for $94 a share

cbc.ca

99 pointsoulipian117 comments

Tim Hortons has been owned by a large U.S. chain before. It was spun off from Wendy’s in 2006 and became a publicly listed company that is now widely held by Canadian financial institutions, without one controlling shareholder (Quoting from The Star).

Reproducing relevant parts from an recent article from The Economist:

America’s corporate tax has two horrible flaws. The first is the tax rate, which at 35% is the highest among the 34 mostly rich-country members of the OECD. Yet it raises less revenue than the OECD average thanks to myriad loopholes and tax breaks aimed at everything from machinery investment to NASCAR race tracks. Last year these breaks cost $150 billion in forgone revenue, more than half of what America collected in total corporate taxes.

The second flaw is that America levies tax on a company’s income no matter where in the world it is earned. In contrast, every other large rich country taxes only income earned within its borders. Here, too, America’s system is absurdly ineffective at collecting money. Firms do not have to pay tax on foreign profits until they bring them back home. Not surprisingly, many do not: American multinationals have some $2 trillion sitting on their foreign units’ balance-sheets, and growing.

The real solution is to lower the corporate rate, eliminate tax breaks and move America from a worldwide system to a territorial one.

I appreciate the content of your post, but I'd like to know for sure who is saying what. Please use quotes when quoting. Links to the source would be nice, too. I believed the first sentence to be yours until I got to the end of it. Is the last sentence is yours or The Enconomist's?

I've never heard anyone say that American corporations pay too much taxes before. That's a first. It's always that they're getting away with paying not enough.

Strictly speaking, that's partly what he said (IE. The tax rate is much higher, however loopholes means they end-up with much less tax in the end). Lowering the tax rate could still result in companies overall paying more tax if tax breaks are removed.

The real story here is in the nature of the acquisition, a so-called "inversion" that will create a combined Canadian, rather than American, company, which is likely to substantially reduce Burger King's corporate tax liability.

This is not entirely correct. The reduction in tax liabilities will be much smaller than you might expect and this is not a merger motivated purely by that. For an in depth discussion see [1].

[1] http://www.bloombergview.com/articles/2014-08-25/burger-king....

Very interesting read, and thanks for the link. Had no idea that the King had fallen on such hard times (or maybe that Tim was comparatively doing so well) Almost double the owned assets ($1.5 B vs $0.8 B) and nearly triple the total revenue ($3.0 B vs $1.1 B). The King may be valued higher for its IP, but it appears like Tim is running a significantly better core business. Admittedly, Tim is basically a monopoly in its home market. At best, this looks like a merger of equals, rather than an inversion; if not a big, but unknown, player buying a weak, but well known, competitor in a new market. Very similar tact as many foreign companies (UK, Japan, German, Chinese) have done in other sectors like tech (doubled from 1996-2005). [1]

http://www.reuters.com/article/2008/08/27/us-companies-owner...

Right, I don't think that's the only motivation, but it seems like it's at least part of it. If I read that article correctly, almost half of Burger King's locations are outside the US and Canada, and the revenue all of those locations, as well as the Canadian ones (however many of those there are) should see a reduction in tax liability; further, that slice of the pie is growing, as Burger King's US presence is shrinking while its foreign presence is growing.

9 billion dollar companies do not spend 11 billion dollars just to save a few dollars on taxes.

So? -- Seems like a smart business move, if that is really the case.

I'm getting tired of people trying to name-n-shame companies that are leaving the US in favor of substantially better tax laws.

Instead of groaning and trying to patronize these companies with some sort of nationalist pride, how about we do something about the damn tax laws that are making companies want to leave in the first place.

Sure, because a race to the bottom (the best tax rate from a companys perspective? 0%) is exactly what the world needs. I've never understood why companies should only be liable to taxes in the country they are incorporated in. You do business here? Then you pay tax here.

Should be easy to fix. Somehow it isn't.

There are a lot of things that can be done without a so-called "race to the bottom".

- Why does it require a team of lawyers and tax experts just to haphazardly understand the tax law well enough to submit a corporate filing?

- Why does America have the highest corporate tax rate in the world? (besting the next highest country by 4%)[1]

- Why do we double tax corporations that earn revenue off-shore? (they pay taxes in the country they earned the revenue in -- then we tax them again if they bring that money back into the country -- effectively encouraging corporate like Apple to keep billions of USD offshore)

The list goes on ...

[1] - http://www.kpmg.com/global/en/services/tax/tax-tools-and-res...

Well, I'd rather have a race to the bottom on tax rates, rather than the race to the top that governments seem keen on.

In reality, it the tax rate wouldn't need to go to zero - just low enough that the cost of paying it outweighs all the costs (PR, resource issues, relocation costs etc etc) of moving to a lower tax regime.

While I agree with you, on the flip side the alternative is that they don't sell their goods here, and people wouldn't be very happy about that. You have to draw a line somewhere to decide what's a reasonable price/tax/etc. for everybody, but it's not really an easy thing to do.

> "the flip side the alternative is that they don't sell their goods here"

That's a silly concern. Businesses do not forgo profit simply because they'd prefer if there were more. They always prefer if there were more. And yet they still seek the profit that's available. So long as cost/benefit suggests the US is a profitable market, they will continue to sell their goods here.

The only "risk" of corporations "taking their ball and going home", is if the United States pursued a transparently self-destructive tax rate on foreign-based corporations. Which there is absolutely no reason to expect would even enter rational conversation.

Imagine a husband and wife are talking about what car they should buy next and they disagree on the budget. The analogous case to a tax rate so high corporations leave the US market, is the husband deciding to burn the house down so that there's no garage and no money at all.

While that's certainly a possible alternative to negotiating their differences, discussing that alternative is, at best, silly. And attempting to ascribe serious weight to the possibility is downright intellectually dishonest.

I have to disagree. They will go other places if those places aren't going to tax them as much and they expect a similar return. Obviously with Burger King, they're basically everywhere already so it doesn't matter as much, but if the profit margin in the US is smaller then other countries because of tax they'll consider putting stores somewhere else if it's more profitable.

That said, IMO the concern with them selling their goods somewhere else isn't that we won't be able to eat their burgers, but that they employ tons of people at their stores. People are going to be pissed if Burger King decides they're going to close down their slower stores in the US and open some new stores elsewhere that doesn't have tax because they'll end-up making more.

I agree in that we could put a tax in place without anything imploding, they aren't just going to run away obviously. The question is more can we implement a tax which would be worth the money we'd make off of it without it resulting in Burger King closing places around the country because they're not profitable anymore.

Both the possibility that corporations may not come to the US market, or may only come to the US market after having expanded into other, more-profitable markets require an assumption that the US would (substantially) raise taxes above the current level.

We're hypothetically setting out to close a loophole that results in two distinct effective rates, a lower rate A for foreign corporations and a higher rate B for US-based corporations.

So, again, why should we spend any time worrying about what might happen if we were to introduce an even higher rate C? No-one's talking about that. It's not on the table. It's not remotely politically plausible. It's not even a thing anyone's seriously proposed.

Talking about it is either entirely besides the point, or a motivated attempt to conflate closing the loophole with raising rates to C, to scare people away from trying to close the loophole.

> The only "risk" of corporations "taking their ball and going home", is if the United States pursued a transparently self-destructive tax rate on foreign-based corporations. Which there is absolutely no reason to expect would even enter rational conversation.

What's more likely is that corporations would split into the global corp, and the US corp. The US corp pays the high taxes and does work in the US. The global corp owns all the IP, and leases it to the US corp for some amount of money.

It is actually pretty unlikely that they won't sell goods in the US. Burger King is not going to pull out as that is a major market for them.

Not saying the US tax situation doesn't need fixed though.

I agree it's unlikely, at least a full pull-out of the market is basically never going to happen. But if they were to get a somewhat high tax I'd expect their lower-profiting stores may end up getting closed down because they're not worth keeping open (IE. They're basically making nothing off of them after tax, but they could sell them off and then open a store somewhere else that may now be profitable since the US costs more to have stores).

Let's accept your premise.

Assume the USA lowers taxes until again it is attractive to relocate businesses there. The obvious happens, and businesses move to the USA. Yay!

But other countries don't appreciate this loss of business and retaliate by lowering their taxes. Businesses again leave. So the USA lowers theirs again, and so on and so forth.

Eventually you hit a point where one country breaks and can lower their taxes no further, but everyone suffers, because taxes are now so low that revenue gained from the aforementioned business taxes is basically nothing.

It's not a wise plan.

That is a very simplified view of how taxation works. There is quite a bit more to corporate taxes in American than just the percentage.

The bothersome part is, people seem to think our country is just so great that businesses should want to pay ludicrous taxes here, almost like it's patriotic to pay higher tax rates among other things. Well, it's not.

That's obviously not how taxes work.

If that was how taxes worked, everyone would move to Texas, Florida, Washington for the lack of state income taxes. And or every state in the US would have zero income tax.

And every company on earth would be in Ireland. Or every country would already have 0% corporate income taxes by now.

And the US would have lowered its corporate tax rates a very long time ago because they would have to in order to compete.

And countries with high personal income taxes (eg France) would be 'forced' to lower their income tax rates to compete with low income tax rate countries.

While you see relatively small scale effects like this, it is not as dramatic as you make it out to be. There would be no race to zero.

In fact, there is zero evidence of your scenario having ever played out on a global scale in the past century of well monitored public economic data. If a race to zero were even possible, it would have already been forced into existence, as any variance would be enough to trigger the beginning.

That is a wise plan and it is exactly how it works. Every country charges exactly the highest tax they can charge without driving business away. But the tax rate is not the only thing the business has to consider. They have to consider stuff like labor costs, established case law, cost of regulatory compliance, likelihood of civil unrest, corruption, etc. If a country creates conditions are good for business then a country may be able to charge a higher tax without driving business away.

Let’s accept your premise. Every country competes to provide the best business environment except one. One country doesn’t compete, on principal, because the result will be that “everyone suffers”. Now who suffers?

I don't think I made a value judgment there. I have no objection to Burger King pursuing this strategy. I just think that motivation is part of the story -- it's not just about selling donuts in Canada, and the business aspects are worth reporting on, if for no other reason than to increase awareness about exactly the US tax law deficiencies you describe.

It looks like the Laffer Curve [1] applies to corporations and not just people.

[1] http://en.wikipedia.org/wiki/Laffer_curve

The Laffer curve for people certainly exists at a point (say, a 70% tax rate), but it is silly to state it is applicable now - for real-world evidence, look at the tax receipts under the Bush presidency, or Sam Brownback in Kansas. Laffer is a smart dude, but the Laffer curve is not an authoritative law as much as a rule of thumb that applies in a few, limited situations.

I wouldn't say it's a law - just a formalisation of common sense: You can't raises taxes indefinitely, and the higher the tax rate the greater the lengths people will go to to avoid it.

Well since we throw people in prison for avoiding taxes, is it really that unreasonable to 'name and shame' corporations that are basically doing the same thing through clever legal wrangling?

People are imprisoned for evading taxes, not for avoiding them. If the law says you don't owe a particular tax because you moved to Canada, why would you pay it?

We throw people in prison for evading taxes. Avoiding taxes is legal.

The growth potential for Tim Hortons seems limited in my opinion -- it will continue to fill each corner of Canada, but we already know that and this is priced into its existing valuation. It dominantes Canada but that is because it is seen as part of Canadiana. It's attempts to expand into the US have generally not succeeded.[1]

Both are already large enough to have economies of scale in terms of purchasing power, thus I do not see the reason for this outside of tax savings.

Strangely, a lot of Tim Hortons in Canada share buildings with Wendy's. Thus there is some cross pollination there between these two, maybe the strategy is to take this to the extreme and have nearly each Tim Horton's location be paired with a Burger King.

BTW some of the richest people I know (10,000 sq ft homes) own Tim Horton franchises (usually in central locations in major cities.) A boring business compared to startups, but damn it can be crazy profitable. Might be the time to snap those locations up if they are going to do some major US expansion.

[1] See https://en.wikipedia.org/wiki/Tim_Hortons#Northeastern_US_de... But another commenter disputes that and he may have more recent information.

"It's attempts to expand into the US have generally not succeeded."

Looks like someone's never been to Western NY.

Someone's going to have to define "successful expansion" before this recurring point/counterpoint turns ugly.

Tim Horton's marketing has to be lauded for the way they've insinuated themselves into the national identity. It's impressive to somehow make fast-food donuts and coffee into something "patriotic".

I think the problem is that the company is hampered by its own success - coffee has very low overhead and every canadian drinks Tim's coffee at least once in a while. This gives them some impossible expectations for every other project, because every opportunity for growth doesn't see that kind of spectacular margin.

its already dominating Western New York and growing in NYS in general. There is one in Penn Station in Manhattan now.

> its already dominating Western New York and growing in NYS in general.

Really? Maybe things changed. Because a few years ago, I had read that some of its US expansion plans hadn't worked out, see here:

https://en.wikipedia.org/wiki/Tim_Hortons#Northeastern_US_de...

The WNY presence has been strong for 30 or 40 years (I think Michigan as well, not positive), that paragraph basically just says they failed to establish a beachhead in New England, which is DnD country, through and through.

attempts to expand not successful? Not sure about that. Sure the first attempts (incl the Wendy's deal) weren't...but the current era of expansion in NY/NorthEast 'Cafe & Bake Shop' seems to have gone better...with Tim's learning/more financial power/proper ad marketing. It's become one of the small players in your everytown corner coffee shops. Just in a relatively small region. I mean, something helped attract BK to it other than the tax inversion.

My wife and I see ads for "Tim Horton's Cafe and Bake Shop" during NFL games on the US stations and it seems bizarre to us that they apparently felt Americans needed to have an explanation added to the name of the business.

All over Rochester NY. I think the coffee is better in Canada though- based on my single experience trying it on the Canadian side of Niagara falls.

It's not strange that Wendy's and Tim Horton's share a lot of buildings. Wendy's bought Tim Horton's in 1995. They sold it off again in 2006.

Anecdotally, Tim Horton's is doing very well in Michigan. In my hometown there were 2 Tim Horton's years before there was even a Starbucks.

Not quite my hometown, but the closest reasonably sized town to there has around 5 Tim Hortons but no Starbucks.

> "It's attempts to expand into the US have generally not succeeded."

[curious] What parts of the US has it tried expanding in, before? I live in northern midwest US, and have never seen any around here. Was it more towards the east or west coast, do you know?

For instance: http://articles.courant.com/2010-11-11/business/hc-tim-horto...

Ohio & Western NY primarily

There's a tiny TH in Times Sq NYC, but it's horrible. It's basically a small counter top in a KFC or something. The donuts aren't made on premises.

My understanding is that the TH in Camada have donuts shipped to them from. Central location rather than baking those on premises. Could be out of date info though, I don't know. I've wanted to try Tim Hortons just because it's a central Canadian think in a webcomic I once read (Avalon) but I have never succumbed to the idea of an insane weekend road trip to canada to try a donut. I do hope they come to the US near me.

Honestly, the donuts or the coffee aren't worth the drive. Canadian's love it for the nostalgia, not because it tastes amazing.

As a kid you went there with your parents. As a teen you went there with your friends. In highschool/summer, when you didn't have specific plans (@4pm or @4am), you met up at TH. In university, you'd go get a soup, sandwich and drink, sick of eating the same thing for the 4th time this week. Now as an adult you go back home, and if you're meeting old friends, you know you're meeting at Timmy's. Infact, half the fun is meeting at Timmy's. I think I'm quoting one of their ads but, for Canadian's "Its [just] where life happens".

Anyways, not saying you shouldn't take the road trip. Long drives with a friend or two just for some "mediocre" food are the most fun trips. I have one almost annually for In-N-Out. Definitely don't be expecting ambrosia though, its awesome because its not special, its just a donut and a double double.

I once drove four hours to the closest Krispy Kreme in my area the day it opened. It was worth every second of driving just to eat them. I brought back 10 dozen donuts and sold them locally for double the price.

Now living in Canada, I would probably drive 10 minutes to a Timmy's, but that's about the extent of it. The donuts aren't as good as the other local donut franchise (Robin's), and their coffee is absolutely terrible. Krispy Kreme is superior in every way.

If you find yourself in Canada, stop in and buy a Double-double and some Timbits. Don't make going to Timmy's the point of a trip.

You see them in the same real estate because Wendys purchased Tim Hortons in 1995, but subsequently sold it off.

The Tim Hortons business isn't attractive except for the tax inversion benefits, which make it plenty attractive indeed.

I believe Burger King wants to move it's head quarters to canada for lower taxes.

Here's hoping this means TH goes national (if not worldwide). We need a TH in Atlanta; good coffee, donuts better than Krispy Kreme and Dunkin Donuts.

Recalls my notion of a "Franchise In A Box": in a shipping container, pack up all the necessities for installing/opening a retail store/restaurant overnight in a typical retail space, and rapid removal if needed. Good for short-use venue events such as major conventions, or for jumpstarting a business by opening a functional (albeit minimal) store in available short-lease space while a more elaborate/complete/larger implementation is being installed.

I mention this as an eager would-be customer, wishing that BK (having more interest in "lower 48" USA expansion than pre-merger TH) could now just arrange some short-term leases, rent a "Tim Hortons In A Box", and open a few test/introductory locations within a few days. I want my Tim's! Moreso, my Canadian wife wants a Tim's in Atlanta ASAP, and ya gotta realize that to Canadians, Tim Hortons is like Starbucks deified.

I don't know what's wrong with Dunkin Donuts. They still have pre-starbucks prices for a cup coffee, and their coffee is pretty good, and the donuts are donuts: delicious sugary carbs. You go in there and you spend like $3 and get enough calories and coffee to survive until the next day.

Personally I don't like all the faux-luxury, "experience", "it's a latte not a coffee" places like Starbucks. Everything is priced way higher and the service and cleanliness is pretty much on par with a McDondalds, just with fancier marketing materials.

I'm not just griping about Starbucks, urban areas in particular are loaded with these little diners and shops that spent a lot of money on the wall paint, and menu selections, but then aren't half as good and honest as the little dingy deli/liquor store next door that sells way better sandwhiches at 1/4 the price.

And the local coffee shop with the grumpy guy doesn't put ammonia laced caramel flavor in his coffee neither.

Hey if the food is genuinely good, no problems. I'm just not a fan of marketing gimmicks that somehow justify a price increase when otherwise the value isn't there and you can get better for cheaper somewhere else only they didn't use helvetica on their store signage.

A Tim Hortons is about $2.10 a Starbucks grande is about $2.30 but it has more (50ml?) in it compared to a medium Tim's.

And if you buy with a Starbucks card and drink inside you get a free refill so it's now almost half the cost of a TH medium.

There are a lot of customers at Tim Hortons who sit inside most of the day, so complaining that Starbucks is more expensive while they pay double for less, well I guess they are as bitter as the coffee.

By the way in case anyone is curious Tim Hortons is spelled that way without the apostrophe. It was to appease the french language police in Quebec actually make that Québec, they like their apostrophes in different places I guess.

I've only been to Canada a handful of times, but there is a massive quality and culture difference between TH and Dunkin. I actually enjoy going to TH and always dread walking into a Dunkin. I think if TH comes to town it'll hurt Dunkin in a serious way. All of the Dunkins near me are trashy little dumps or, ironically, semi-clean ones built into gas stations. I'd pay a higher price for better food. I can taste the dollar or so I'm saving at Dunkin and would rather just spend more for a better product.

> I'd pay a higher price for better food.

I just can't believe my eyes. Tim Horton's is where you go to get "I just need caffeine in coffee form I don't care how it tastes" in Canada. They are quite literally on most street corners, and while clean and efficient, I wouldn't say they offer anything superior to the DDs and KKs I've been to in the States.

As a Canadian but not a coffee drinker, most coffee drinkers I know love Tim Hortons and nearly refuse to drink coffee from anywhere else.

To be honest, Dunkin is borderline inedible. I really do see a very real quality difference between it and TH. To each his own I guess.

That's funny, most Canadians remember the huge quality nosedive Tim's took when they switched over to centralized factory baking and then shipping their baked goods frozen - back in the '90s all their baked goods were prepared on-site and were far fresher.

Personally I can't even drink TH coffee, it's truly horrible. You will find better coffee at an airport vending machine, it's a 1/10.

The processed food is also garbage.

Their marketing sucked in so many people that associated TH with being a "real Canadian", whatever that means ( aka bullshit), but worked extremely well.

They have tried to expand Tim Hortons to the US. There are still a couple around but it was a failure. In a large part because Tim Hortons is no better than any other fast food doughnut place.

The coffee sucks. The doughnuts are made in Toronto, partly cooked, frozen and then shipped out to the retail stores. Yummy.

I will never understand the love for Tim Hortons.

The shipping container idea is pretty interesting. Food trucks kind of do this, but I like the idea of a just-in-time franchise.

Maybe look to the micro-house movement for ideas on plumbing issues and that sort of thing.

I have a friend that feels the same way about Tim's. Maybe if I ever have a chance to try it I'd understand. My wife says my taste buds are deaf, so I may not appreciate it. I drink folgers, mainly for the caffeine. I appreciate a good cup of coffee, but not enough to spend the money for it.

I don't know what Tim Horton's is like south of the border, but I can't believe you're saying TH donuts are better than KK donuts.

TH donuts in Canada are made in a factory somewhere, frozen, and then heated to expand at the franchise. The KK I went to had a little automated assembly line, making them fresh.

I've been pushing that idea of "[Establishment] In A Box" on anyone who would listen, too. Could you imagine, in the distant future, entire small towns turning migratory?

I really wouldn't say Tim Hortons' coffe is good... I guess it is a matter of taste.

Agreed. Of the "cheap" coffees in Canada, I'd rather drink Country Style or McDonald's. Well, at least Tim Horton's tastes better than Coffee Time.

I suspects, it got its reputation of having good coffee when most coffees were burnt and undrinkable.

I guess it depends on taste. I prefer Tim Horton's coffee to Starbucks if there both black.

They tried to expand down into New England a few years ago in 2010, but closed all those shops after a short time. Could not compete with the ubiquitous Dunkin Donuts (which has also kept Starbucks to a minimal presence.)

We actually had a Tim Hortons in a container on the "boardwalk" at Kandahar Airfield, Afghanistan. (It might have gotten replaced with a 12x40' trailer instead of a container at some point, though.)

How was it? Was it only Canadian troops attending, or did our boys convince some Yankees or Limeys to drink the great Canadian Double Double?

It was brought by the Canadian forces, but open to all. (the Germans brought some weird commercial PX; the French had a nice cafe; the US brought BK/Pizza Hut and a clone of starbucks, Green Beans Coffee). It's the only TH I've ever visited, and was pretty good. (I preferred the kebab shop, though.)

http://www.timhortons.com/us/en/corporate/tim-hortons-kandah...

> good coffee, donuts better than Krispy Kreme and Dunkin Donuts.

Maybe a few years ago. Everything at Timmy's is warmed from frozen now, and the quality is much worse than it used to be.

Oddly the article doesn't seem to explain why this sort of deal makes sense:

1) Overseas cash for a U.S. corporation isn't taxed unless it's brought into the U.S., so if you have a pile of overseas cash, why not buy something?

2) Moving your headquarters to a country with a lower corporate tax rate can also be good (though I believe Canada has a lower stated corporate tax rate, I'm not sure how its effective corporate tax rate compares to the U.S.)

http://en.wikipedia.org/wiki/Tax_inversion

Canada has a Effective Corporate Income Tax Rate of 7.2% while the United States is 28.5% though it looks like it varies from sector to sector.

Source: Appendix A (pg. 22) http://www.kpmg.com/Ca/en/services/Tax/Focus-on-Tax/Document...

A fascinating document, thank you for the link. As a Canadian, I'm quite disturbed by these numbers, since the "trickle-down" theory that these tax rates are based on have been proven false by Thomas Piketty's work.

Ironically, McDonald's and a few other large corporations have recently been in the spotlight for hiring Temporary Foreign Workers (TFW) in urban areas with very high unemployment rates.

The Canadian tax payer is beginning to understand that giving corporations a free pass to make outsize profits doesn't help them in the slightest. Canadian income tax is comparable to NY state, but apparently our oligarchs get a free pass (7.2% effective income tax!).

Truly absurd.

That seems to be only Federal rate - you have to pay corporate tax to the province as well. Tim's is based in Ontario, so they'll likely be paying closer to 25% once all is said & done.

You're forgetting provincial taxes. They were talking about this last night on <strike>The Lang and O'Leary Exchange</strike> The Exchange. Evidently, after considering all levels of government taxation, Burger King is only going to save around 1% tax.

Reduces their tax rate by 14%:

https://openfolio.com/insights/117/tax-inversion-deals-conti...

Corporate taxes in the states : 40%, in Canada : 25%

You're forgetting provincial taxes. Check out the KPMG report which shows that Canadian Corporate Tax rates are generally 38%. There are some loopholes to lower that rate

http://www.kpmg.com/ca/en/issuesandinsights/articlespublicat...

The only real reason for this merger is a corporate inversion[1] - a lot of companies are doing it. Corporate inversions allow you to move your HQ outside of the US and reap huge tax benefits.

[1] https://en.wikipedia.org/wiki/Corporate_inversion

Not true. It might be a reason but it's not the only reason, and certainly not the primary reason.

At the moment Burger King pays tax at a rate of 35% or thereabouts, on all of its income, no matter where it is generated. About half of its income is from the US, and half is overseas.

After the acquisition, it will still pay 35% tax on all of its income generated in the US, however it will only pay the local tax rate on its income generated outside the US. For example, this is about 15% in Canada, and 21% in the UK (there aren't many countries where corporation tax is above 35%... Japan comes to mind).

So the saving is the difference between the local corporation tax and the US corporation tax, on about half of BK's income - if the average worldwide corporation tax is 20%, so the difference is 15% and half that is 7.5%. So this is equivalent to reducing the rate of corporation tax in the US from 35% to 27.5%. While nice, it's not quite the "huge tax benefit" that you mention.

> there aren't many countries where corporation tax is above 35%... Japan comes to mind

Japan's is only slightly higher, at 35.64%:

http://www.kpmg.com/global/en/services/tax/tax-tools-and-res...

but that will actually be cut below 30% in the near future:

http://money.cnn.com/2014/06/24/news/economy/japan-abenomics...

I'm sure other Canadians on HN might agree - it feels a little weird to see our darling Tim Horton's on the front page of US business sites (and HN of all places!) and to see words like "double-double" and "timbits" used.

It has been almost 200 years since you won the War of 1812. Maybe this the first salvo in Tim's conquering the US market.

That has to be a joke, right? You mean since the British won the war of 1812.

No one really won the War of 1812. Instead everyone just got sick of fighting (the Americans got sick of spending money they didn't have and the British needed to worry more about Napoleon) and said let's act like nothing happened. A lot of people agree that because no one pushed for serious concessions in land or reparations the Treaty of Ghent is one of the main factors that allowed for the close relationship between the American, British, and indirectly, the Canadians for the 200 years following the war. So the running joke is that Canada won, even though Canada didn't even exists because the British retained what then became Canada.

There was one true loser though and that was the Native Americans. Most allied with the British and in the end they basically turned their back on the tribes and let the American do whatever they wanted to the Natives as they pushed west.

Lets all raise a Double Double for August the 24th, 1814.

Right, what's next? roll up the rim to win?

Say goodbye to the prizes.

This is strange to me. I see a lot of burger kings closing up while tims are going strong.

Discussion of the merger talks from yesterday https://news.ycombinator.com/item?id=8222432

"But Burger King already managed to get its tax rate down to 27.5 per cent last year, company filings show. Tim Hortons paid 26.8 per cent tax in Canada last year, according the its annual report."

Of course, these are the mean interest rates. If it has the opportunity to shift higher-than-average taxes into lower ones by geo-shifting, without affecting its lower-than-average taxes, it's average rate will go down.

Missing some obvious LOTR here, "return of the King" and "One does not simply walk into Canada". You even have the competition, Ronald McDonald, as a stand in for sauron.

I've been looking at it like a near startup style pivot. Can't out mcdonalds the mcdonalds company? Well then pivot and try selling unburned coffee and donuts. It could work.

Just for some context, Burger King had $233 million of net income in 2013 and paid $88 million in income taxes.

http://investor.bk.com/download_arquivos.asp?id_arquivo=C0B7...

Perhaps I'm ignorant, but this seems like and insane corporate tax burden compared to what many (most?) large organizations are reported to be paying. Can anyone explain if my assumption is wrong or why they pay so much?

It's not an insane tax burden in the US, it's common. Most corporations get socked with a high rate; most can't dodge taxes as effectively as some multi-nationals.

Exxon paid $86 billion in corporate income taxes the last three fiscal years. They generated $118 billion in net income by comparison. Talk about a tax hammer. Chevron is roughly the same.

Facebook had a $1.25 billion income tax last year, and generated $1.49 billion in net income.

It's popular in the media to pretend corporations evade taxes universally. The fact is, very few are able to. If you remove about 50 huge corporations from the pool that avoid taxes very skillfully and have large incomes, the average corporate income tax rate in the US is typically closer to 27% to 30%, versus the more often quoted 22% to 25%.

Because you only hear about the outliers that have gigantic losses that they carry forward to reduce their tax burden in future years (like GE). Most corporations don't avoid taxation to the extent that the popular consciousness seems to think.

Even gigantic, evil Exxon Mobil paid a lot of taxes. In 2013 they paid $24 billion in taxes on $57 billion in pre-tax income.

http://cdn.exxonmobil.com/en/shareholder-archive/~/media/Rep...

Glad to see that the Burger King business unit will stay in Miami: http://www.miamiherald.com/2014/08/25/4308025/burger-king-in...

Daniel Schwartz, CEO of Burger King, is known for being unusual in his industry: http://money.cnn.com/2014/08/25/investing/burger-king-ceo-ag...

All I want to know is whether I can get Timbits in the South Eastern U.S. as a result of this :)

I don't get Tim Hortons. Maybe because I'm an American but I feel like other Americans don't really get Tim Hortons as much as Canada does.

Tim Horton's heavily marketed themselves as something patriotic, and it stuck. Lots of heartstring-pulling ads about soldiers and Olympians and backpackers abroad jonesing for Tim's and having melodramatic homecoming family moments with a cup of coffee in-hand. Canadians aren't really bombarded/innoculated with patriotic imagery the way Americans are, so this didn't get the kind of eye-rolling reaction it deserved.

See also Canadian Tire, which is basically Wal-Mart's hardware section after it invaded and took over the whole store... somehow buying duck-tape and WD-40 from a confused teenager is patriotic too.

Tim Horton's is a Canadian cultural distinction from the US donut stores. The basic saying is that "Americans go to donut stores for donuts. Canadians go to donut stores for coffee."

The saying shows a basic difference in how TH emphasizes where they place their quality. TH places the top importance on the coffee (the coffee to be honest is average, but always fresh, and is a good price vs Starbucks). While Krispy Kreme places the emphasis on Donuts.

I remember when KK moved into Canada, everyone was raving about how delicious the donuts were, but that the coffee was $4!7.

EDIT: Krispy Kreme not Dunkin Donuts

I attribute Tim Hortons success in part because of patriotism. People go there because it is Canadian and also because it is cheap. If you drink your coffee "double double", it's fine coffee. As for the food it isn't expensive and has the impression of being fresh. They actually don't bake the donut in store anymore, but un-freeze them.

Personally, I'm more of a Starbucks fan since I drink my drip black.

My hope is that they close some Timmies down to open some Burger Kings. Burger Kings has the best poutine in my opinion. Burger Kings are rare these days in Canada.

>> If you drink your coffee "double double", it's fine coffee

If you drink your coffee that way, it's fine coffee flavored sugar. If you drink Tim's coffee as regular, it tastes like water.

>> My hope is that they close some Timmies down to open some Burger Kings.

In the 416/905, we have a lot of Tim Horton's + Wendy's locations left over from when they were owned by Wendy's. I wonder if the Wendy's half of those locations will be converted to BK.

That would be a great move. Wendy's is really most trashy fast food chain out there. The one in my city still has carpet in it...

Really? In my area wendy's is probably the best between mcdonalds and BK. BK is disgusting and haven't eaten there in years. I will do mcdonald's or wendy's if I'm not on a diet and in an absolute hurry and need some food.

> People go there because it is Canadian and also because it is cheap

Because it's cheap, yes, because it's Canadian, probably not.

Tim's effectively owns the market for cheap coffee. There's no where else you can go except a gas station, if you want cheap coffee.

McD's has made some headway, but they've got their own thing outside of TH's narrow focus.

I'm Canadian, and I don't get it either. Everyone has their own preferences, I guess.

As a Canadian working in the US, I have a pipe dream. All Burger Kings turn in to Tim Horton's. Would be awesome.

Probably a little irrational, but I think of Tim Horton's as significantly more palatable than Burger King. Might be because I'm from the US and only have good memories of getting 30 cent donuts when I was visiting.

Once upon a time, I was an engineer with only the most superficial understanding of taxes and the economy. Today, I'm still only an engineer (at heart), but in the many many years of working and investing I've learned a few things. (I have only had one formal course in economics. At least it was taught by Robert Solow.) Those that already understand the corporate tax even a little should probably skip this post (and to those that really understand it feel free to correct me where I don't understand it well enough). Taxes and their effects are considerably more complex in real life than my examples below.

When a partnership makes money, the profits flow through to the partners and are taxed as ordinary income, so to compare:

    XYZ Parners (having 10 equal parners) makes $10,000,000
    Tom (a parner) has:
      Additional ordinary income: $1,000,000 
      Taxes:
        Federal (%39.6)            -$396,000
	State (CA %12.3)           -$123,000
    ----------------------------------------
      Net:                          $481,000


    ABC Corp (with say 10 owners) makes $10,000,000 in profit
     Corporate profits         $10,000,000
     Taxes:
       Federal (%35)           -$3,500,000
       State (CA %8.84)        -$  884,000
    ----------------------------------------
      Net:                      $ 5,616,000

Note that this $5,616,000 can be retained by the corporation, but nobody actually benefits from it until it is distributed to the owners, distributed to it ten owners as dividends:

    Tina (an owner) receives $561,600 dividend payment
      Additional investment income of   $561,600
      Taxes:
        Federal (%23.8)                 -$133,661
	State (CA %8.84)                -$ 49,645
    ----------------------------------------------------
      Net:                               $378,294

There are a few things to notice here, before an owner gets any money out of a C corp, there are four taxes leveied and over %60 of the company's profits are taxed away. This puts corporations at a disadvantage, tax-wise, to parnerships under my very simplified example. They are also at a disadvantage to foriegn corporations that don't have high corporate tax rates.

There are direct ways for the corporation to control its profits. It can increase wages to employees. In this case say there are 100 employees, each compensated the same and all profits are paid out to employees:

    Tim (an employee) receives a bonus of $100,000 (1/100 * 10 Million)
      Additional ordinary income         $100,000
      Taxes:
       Federal (%35)                     -$35,000
       State (CA %8.84)                  -$ 8,840
    ---------------------------------------------
      Net:                                $56,160

These taxes are paid by each of the 100 employees receiving bonuses.

Another way that a corporation can lower its profits is by lowering the price of good sold, which benefits consumers.

Owners of the corporation like Tina above want to make something from the ownership of the company and through the board of directors (voted in by Tina and the others) they expect the company to eventually issue dividends (even if it is too far in the future to benifit Tina the building retained earnings will drive up the value of Tina's shares because of the anticipation of future dividends). This keeps corporations aiming for profits; their owners insist on it. Eventually Tina will have to pay taxes on the capital gains from the increased value of her shares or to pay taxes on dividend issued by the corporation.

Note that parnerships don't pay corporate taxes, instead the owners pay income taxes on the profits. Corporate taxes introduce another layer of taxes and complicate the tax system. Why not have zero corporate tax? Firms structured as parnerships don't pay corporate taxes and the income will still be taxed by the time it gets to Tom or Tina. No indivdual gets away without paying taxes on money he or she receives no matter what the corporate tax rate is. This is why other countries can have lower corporate tax rate that the US.

Of what benefit are corporate taxes. Like VATs, corporate taxes affect the entire population. The impacts are diffuse and a bit opaque so the voters being affected by it are unaware of it, so it is a less painful way for governments to raise more revenue from us. Corporate taxes raise the cost of capital to corporations, which has a negative impact on the growth of the overall economy. Further, it incentivises companies to actively lobby for special breaks and perks. Politicians of all stripes like this system because corporations are big donors that keep the croney capitalism going.

The real question is who bears the corporate tax and is this the most efficient and fair way to collect taxes [1]. In my own opinion, I don't think it is a good idea. Why not simply raise taxes on dividend income to ordinary rates and eliminate the corporate tax entirely. This would eliminate the competition for loopholes that distort the whole economy and hurt us all.

[1] Who Bears the Corporate Tax? A Review of What We Know, http://www.nber.org/chapters/c0065.pdf

It's all to do with periodical cicadas populations.

Two companies...one mediocre...one I don't believe large enough to pull the deadweight of the other...trying to mitigate tax burden and safe face.......Where I went to University there was a Burger King that was right by my old apartment and it just so happened to sit on a huge piece of property...and property there wasn't cheap (relatively speaking) and we prayed for 5 years that'd they sell it and put in a Panera Bread.

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