In defense of Burger King

I think some of that runs afoul of various treaty obligations we have. I know we’ve gotten in trouble before for not treating Boeing (domestic) and Airbus (foreign) the same in DoD contracts because we have various treaty agreements not to specifically favor domestic companies.

You’re confusing tax incidence and tax burden. Individuals shoulder corporate tax burdens already. It’s just not the same incidence as an income tax, the same way property taxes are not the same tax incidence as income taxes, and the same way excise taxes (sales taxes, cigarette taxes, alcohol taxes, hotel taxes etc) are not the same incidence as personal income taxes.

But the burden is shouldered by individuals, and not even necessarily by the desired individuals. I think the strongest evidence is that corporate taxation is mostly born by consumers in the form of higher prices, it is born of course also by employees of corporations who may face lower wages/layoffs, and of course the owners and shareholders of corporations (“the bad guys” in SDMB speak.) But I think there’s good evidence the primary burden of corporate taxes falls to consumers of the corporation’s products and services.

So if it’s a Wal-Mart that means poor people, if it’s Tiffany’s, that’s a different economic group etc. I think managing tax incidence is important, which is why a “pyramid” of government revenue should be made up of property taxes, income taxes, and sales taxes. When you weight too heavily to any of those you are more susceptible to wild swings in revenue. With the underlying economy being the primary determinant of all government revenues there is already some inherent and unavoidable swing in revenues, that is only exacerbated by a poor tax structure. So I’m not saying abolish corporate taxes because consumers bear the burden already, but I do think that if you recognize we need to look at tax policy more broadly in terms of total revenue and a balanced tax incidence the proper corporate tax rate is almost always going to be “the one that is the most competitive.” Because it is the tax that can most easily and effectively be changed for a foreign version of the same tax, due to how easy it is to move a corporation versus how difficult it is for an American to immigrate to Canada or Europe. Further, due to all the various economic benefits of having corporations headquartered in your country it makes sense to have lower corporate taxes relative to other countries.

It also makes sense to do away with a system which massively punishes the company’s that cannot claim tons of tax credits. These companies face a tax rate of 35%, the average is around 12%, but some companies have to pay the full 35% and they are often companies in fields we really want to keep. Our tax system is set up to specifically favor companies that are in traditional heavy industries, and specifically punish those that aren’t, which is really pretty backward. More reasonable still is a flat 15% corporate income tax rate on income before depreciation. So as long as you’re profitable you pay 15% of every dollar of profit you make, no ifs ands or buts.

If you’re referring to the thing I think you are, Airbus established a presence in Alabama specifically to comply with Buy America Act requirements.

You asked for details about how many contracts US firms have with the NHS. I do not have the time to search for a detailed list of such deals. Instead, I posted a link which stated US firms already have such contracts, and that some future contracts may be under political threat. The link was an adequate summary of the position US companies hold in the NHS, and the political debate in the UK surrounding the issue.

You really are trying too hard to be a smart arse.

Actually the French might — if they could bring themselves to be utter bastards — but most British governments do listen to their master’s voice, and would run along bleating: ‘Mr. President ? Have we offended you in some way ? Please give us another chance, we’re so sorry. Clean your car, Mister ? Shine your shoes ?
They are getting rid of the jobpoints made by an American firm ( computerized machines that show & print jobs ) in jobcentres, but this is because EDS, a company founded by Mr. Perot, and bought by HP as a Shirt of Nessus ( losing $8 billion in four years ) has not been all that it can be.

The IRS is allowed to tax the income from whatever source of all U.S. citizens who have left the U.S., why not corporations?

They can - that’s why these companies are basically renouncing their citizenship. Like Zuckerberg did last year. The question is why the IRS is allowed to do that to individuals or companies at all. Is there any other western country that does that?

Sorry. I guess it was Eduardo Saverin who renounced.

The IRS is allowed to tax income, over the exclusion amount (it goes up I believe with inflation and is around $100k at the moment) earned by citizens abroad. Same for corporations, money earned abroad is taxed here. No other major country does this, I don’t want to speak out of hand but I think it’s possible no other country period does this. Primarily because it is well understood both individuals and corporations pay domestic taxes in the country where they are generating revenue, so taxing them American taxes on top of that is just plain nonsense.

You get a tax credit for taxes paid overseas. So you end up paying the higher of US taxes (with a 100K deduction), or local foreign taxes. So its not really nonsense.

You mark your assets to market so all built in gains are taxed as if you sold and repurchased everything at the market price. You also become a sort of persona non grata in the USA.

I am failing to see how that was a response to my post. Did you quote the wrong person?

We need to not confuse two issues here: the location of the taxpayer, and the source of the earnings.

Individuals

US resident individuals are taxable on their worldwide earnings. They get a deduction or a credit against their US tax for any foreign income tax paid on foreign earnings. Further relief may be provided under the terms of a double taxation agreement between the US and the country where the income is earned. This is pretty much the same treatment position that every other developed country takes with respect to the taxation of resident individuals.

Individuals who are not resident in the US are taxable on their earnings in the US. Again, relief may be provided under the terms of a double taxation agreement between the US and the country where the individual is resident. Again, this is similar to the position of many other countries.

US citizens who are not resident in the US are taxable on their worldwide earnings. As Martin Hyde points out, some relief is provided by the “exempt amount” of about $100k in non-US earnings. This taxation of the non-US income of non-resident citizens is very unusual; I don’t think any other developed country does it, and very few less-developed countries do. I don’t honestly know what the principled argument in favour of taxing non-resident citizens is, but I presume somebody has at some point advanced one.

Corporations

Corporations may be capable of being persons for the purposes of the US Constitution, but they are not citizens, so there is no exact analogy to taxation on the basis of citizenship. Most countries tax corporations either on the basis of place of incorporation or on the basis of place of central management and control. Confusingly, both of these tests are often referred to as “residence”. So most countries will tax any corporation on the income from a trade or business conducted within the country, and they will tax a resident corporation on the profits of its trade or business throughout the world (subject to any relief available under tax treaties). And by “resident” they mean any corporation incorporated in the country, or any corporation whose central management and control is exercised in the country, or any corporation meeting either of these two tests.

To be honest, I’m not entirely sure exactly where the US comes down here. Is a corporation taxable in the US on worldwide income if it is formally incorporated in the US? Or if it is managed and controlled within the US? Or is some other test applied?

Whatever it is, Burger King apparently hopes to avoid liability on US tax on its worldwide income by shifting its centre of gravity one way or another to Canada. This isn’t really abandoning US citizenship, since it doesn’t have US citizenship to begin with. But it’s analagous to abandoning citizenship for an individual, since it’s taking steps to avoid liability to US tax on worldwide income.

I want to make sure this didn’t get missed. This does not appear to be a tax reduction strategy. Here’s another cite if you’re interested.

Not that I think there’s anything at all wrong with an inversion strategy to minimize taxes. Our corporate tax system is outrageous, though it does serve to satisfy the sensibilities of those who think corporations are monolithic greedheads with a bottomless supply of money. You know, the same people who out of one side of their mouths say corporations are not people and therefore should not be afforded any first amendment liberties, then out of the other side of their mouth shriek over the lack of patriotism such strategies imply.

Corporations have to behave legally in serving the interests of their shareholders. Period. You don’t want corporations to renounce their citizenship? Don’t create a tax system that encourages them to do so.

Keep in mind that Burger King is owned by a Brazilian hedge fund, so it’s not like it has some ineffably American identity to begin with.

I’m really not. I can choose to which sales taxes and sin taxes I pay by choosing what to buy and where to shop. I cannot choose which income tax rate I’m going to pay. If corporate income tax receipts go down, personal income tax receipts will have to go up. And, <old style rolleyes> to your parenthetical up there.

And, no one who is defending BK is suggesting that we eliminate corporate tax deductions. They are applauding them for being an amoral corporation and striving to maximize their shareholder value. That’s great and all, and a show of consumer disgust could show them that abandoning the US is not a good way to maximize shareholder value. That is, their tax burden will go down, but if their sales in the US go down even further, then their shareholders will be upset.

Their are ways to cut expenses and some ways will sit better with their customer base than others. This one doesn’t sit well with me.

And, those saying that it’s not for tax reasons – I don’t buy it. It’s not just the differential between US and Canadian taxes, it’s all of their foreign income that won’t be taxed at US rates. I further find it difficult to believe that the combined company will have the same amount of sales in Canada as they do in the US, but I’m willing to change my mind on that point with a cite (not a statement from a CEO furiously trying to defend this decision).

No. But then there’s also no other (significant) Western country whose policies are as business-friendly as ours beyond the tax issue - not to mention any market as large as us. We’re talking about companies that still conduct the majority of their operations in the US and are headquartered elsewhere only on paper (though that is not true of the proposed Burger King/Tim Hortons post-merger entity.) They want all the benefits of US “corporate citizenship” but not the drawback.

Put it this way: even BK/TH stock isn’t going to be traded on the TSX.

Well, people are not slaves to the place of their birth and once someone has renounced citizenship we have no further claim on any of their future income. HOWEVER we do have some claim to the income that they earned while they were citizens. A lot of that income has not yet been taxed because they have not recognized the income yet. When you renounce your citizenship, you are treated as selling all your assets at a price equal to the market value and recognizing all the built in gains in your assets and then immediately repurchasing them again at the same price.

In this way, you are being taxed for any income you have earned while you were subject to US taxes. And any future income you may have will be subjected to the tax regime of your new nation.

The same holds true for corporations.

The problem right now with corporate inversions is that countries around the world have engaged in a race to the bottom. We have seen a resurgence of mercantilism, austerity, beggar thy neighbor, race to the bottom mentality that will ultimately fail for the same reasons they failed the first time.

Yeah ok but that still really has nothing to do with what I posted.

Anyways, these inversions mostly only seem to make sense for American corporations with large overseas operations as they are meant to avoid America’s global taxation policy.

Defense spending could go down sometime soon, if our political leaders had the courage to make that happen. There is no iron law of the universe that says that we have to spend almost as much on our military as the rest of the planet combined. Our political leaders simply choose to spend that amount. I would agree with you that there’s little chance of our current crop of politicians opting for a big decrease in military spending soon, but there also isn’t much call for it from the people. If millions of Americans started pelting Congress and the President with phone calls, letters, petitions, protests, and other types of action to demand a smaller and less expensive military, the politicians would respond.

Likewise for Social Security and Medicare. Right now they’re losing money and on a path towards eventual bankruptcy. That could change, if our politicians had the courage to tackle the problem. If enough American voters demanded that our politicians tackle the problem, they would. Right now it’s not happening.

As for other cuts elsewhere in the federal budget, that could happen too. After all, 18 months age we passed the “sequester” with across-the-board cuts to every federal program. Despite hysterical warnings from fans of big government, it did not lead to a financial disaster. No planes falling from the sky due to air traffic control towers being shut down. No starving hoards roaming the streets due food stamp cuts. No one dropping dead due to health care cuts. We could do another, larger sequester if we wanted to. Once again, there just isn’t any call for it.

Hmmm. Do I support Burger King’s planned acquisition of Tim Horton’s and inversion to a Canadian corporation?

I’ll have to wait on that answer until I find out if they’re going to start offering poutine along with curly fries on the menu board.