Carpe Diem

Who-d a-thunk it? Total tax costs in Canada are 46.4% lower than in the US, and Burger King wants to move there?

taxtableIn a post titled at Business Insider (“Canada Has The Most Business-Friendly Tax Policy In The World“) Myles Udland points to a recent KMPG special tax report “Competitive Alternatives” that measures the Total Tax Index for the ten countries in the table above. KMPG’s Total Tax Index measures all taxes levied on corporations including income taxes, property taxes, capital taxes, sales taxes, miscellaneous local business taxes, and statutory labor costs (statutory plan costs and other payroll-based taxes). According to KMPG:

Among the countries studied, Canada has the lowest Total Tax Index (TTI) at 53.6. In other words, total tax costs in Canada are 46.4 percent lower than in the United States, which has a TTI of 100.0 and represents the benchmark against which all locations are scored.

Should it be any surprise then that Canada may be the new home of Burger King? From the New York Times:

The restaurant operator said on Sunday that it was in talks to buy Tim Hortons, the Canadian doughnut-and-coffee chain, in a potential deal that would create one of the world’s biggest fast-food businesses.

If completed, the deal would mean Burger King’s corporate headquarters would move to Canada, raising the specter of yet another American company switching its national citizenship to lower its tax bill.

HT: Bill Greenway

65 thoughts on “Who-d a-thunk it? Total tax costs in Canada are 46.4% lower than in the US, and Burger King wants to move there?

  1. According to the Obama administration, what we need to do is strengthen the barriers to exit, so that people can’t flee to where they are treated better. You know, sort of like East Berlin.

      • Hey, East Berlin was a rockin joint.

        In addition to meat lines, you could see their considerably shoddier and scaled down version of the Kaiser Wilhelm Gedaechtniskirche, riddled with WWII era bullet holes and no roof, mostly because they couldn’t afford to do anything with the building.

        The tyrannical guards were a nice touch too. We’re getting close.

        • Actually many German churches were completely leveled and the Germans painstakingly reconstructed them one stone at a time using the originals where possible. You still see where some of the stones were firebombed because of the black singe marks on the outer walls.

          The purposely chose not to rebuild the Kaiser Wilhelm Gedächtniskirche – which was in West Berlin.

    • Emperor Diocletian did something similar.. basically turning all the free men of the empire into serfs in an effort to keep the empire from going broke.

      I didn’t work…

  2. How massively unpatriotic of BK.

    Obama needs to pass a law issue an edict mandating corporate patriotism. Problem solved.

  3. The KPMG study is largely irrelevant to the BK-Tim Horton merger, which you’d think might be noticed by economists if not reporters. Two reasons:

    Because KPMG’s total tax index has a strong local component, the country comparisons mask the more important matchups of city vs city. Toronto still wins over BK’s current headquarters in Miami because property taxes aren’t a big deal for a company that collects franchise fees. But the index numbers tighten to 66 for Toronto vs 91 for Miami.

    Labor costs matter a great deal to corporate services companies and Canada has a major advantage in …. drum roll please …. public health care. US employers pay for private healthcare while Canadian employers do not. KPMG says the result in statutory and nonstatutory labor costs is 36 percent of payroll here vs 26 percent in Canada.

    Chances are nothing changes but BK’s tax address. The other major difference is a 15 percent corporate tax in Canada’s vs the effective 27.5 percent BK paid to the US treasury. But if jobs move north, you’ll find the explanation in healthcare rather than taxation.

    • todd-

      you seem to be missing a number of salients here.

      healthcare costs are at the franchise level, not at the corporate level.

      thus, they do not affect bk to the extent you are assuming.

      canada does not tax overseas income.

      what BK is shielding are the US and RoW franchise fees.

      that tax rate will fall to zero.

      their effective income tax rate will be far lower than the statutory canadian rate.

      such us health costs as exist are already in the BK opex (non franchise restaurants, corporate staff, etc).

      also note that roughly 1/3 of the canadian health system is paid for by corporate taxes.

      thus, the net margin at BK is likely to rise by maybe 1000 bp. that’s a massive jump, and it’s not from healthcare.

      • What? No explanation? Just to complete your education, Congress applied asset tests to inversion tax deals that take most of the fun out of it, contrary to the notion here that BK is leading a parade north. BK can jump the 49th parallel because its assets are intangible, as are fellow expatriates (mostly to Ireland) in pharmaceuticals and biotech. If BK owned its US outlets, as opposed to franchisees who pay fees to BK, the IRS would say its merger with Tim Horton doesn’t count.
        Now you can say that the American Job Creation Act of 2004 is confiscatory, but it’s kinda hard to say Obama had anything to do with it, eh?

    • If you don’t like the numbers I cited, take it up with KPMG because that’s where they came from. Baked into the supposed 46.4 percent tax advantage north of the 49th parallel is 10 percent higher labor costs, thanks to direct payments by US employers for private healthcare.

      Now if you want to agree that the KPMG study greatly overstates the case for securing a Canadian tax address and is only partially applicable to BK…

      BTW If BK is a Canadian corporation I can’t see how franchise fees remitted to Oakville from US cities would be consider foreign income by Revenue Canada.

      • todd-

        my issue is not with kpmg but rather, with this specific transaction.

        these tax index numbers are general.

        i was speaking in specifics.

        BK is going to save a ton of tax by moving to canada.

        “BTW If BK is a Canadian corporation I can’t see how franchise fees remitted to Oakville from US cities would be consider foreign income by Revenue Canada.”

        then you do not understand how taxation works across borders.

        if a Canadian citizen earns income from a US source, canada does not tax it.

        most of the world works like this.

        the US is one of a tiny handful of countries that taxes global income.

        thus, an american franchise will pay a fee to canada corporate. but, because the franchise is overseas, it will not face Canadian income tax.

        • note:

          this is different for exports.

          if you build a Zamboni in canada and ship it to detroit, you pay tax because the business of making it took place in canada.

          because, in the case of a franchise, the business that generates the fees takes place in the US, it is not subject to Canadian tax.

          i have actually looked into moving to canada and giving up US citizenship while keeping my business here from precisely this reason, so i happen to know how this works.

          • The blogger feigns surprise that Canada’s tax burden is 46.4 percent less than ours and that BK wants to move there.

            I suggest that the source of the 46.4 percent, a KPMG study, is a mashup of generalities that will be wrong in any specific instance.

            So I guess we agree, eh?

            I had the opposite experience 20 years ago — owing Canadian taxes on royalties earned in the US but paid to me in Canada. Could be corporations have a better deal. But I’m not convinced that Revenue Canada would be cool that they aren’t taxed anywhere, the point being for BK to escape US taxation.

          • Todd-

            You’ve changed your story like 3 times since you commented. I’ve noticed you have a habit of doing that.

            Interesting.

          • Readers aren’t as dumb as you think, Jon.

            Comment 1: The KPMG study is largely irrelevant to the BK-Tim Horton merger,
            Comment 2: Now if you want to agree that the KPMG study greatly overstates the case for securing a Canadian tax address and is only partially applicable to BK…
            Comment 3: I suggest that the source of the 46.4 percent, a KPMG study, is a mashup of generalities that will be wrong in any specific instance.

            So you’re right Jon. I, like, posted three comments.

          • todd-

            what a hilariously disingenuous argument style you have.

            “so i guess we agree?”

            i never commented on the kpmg generalities. yet you then presume my agreement?

            on what planet does that follow?

            one can always argue that the specifics of a given situation diverge from generalities. that’s more or less a tautology. but you also went further and cited a number of purported specifics that do not apply to this situation.

            i laid out what you were missing and why, in this specific instance, you are wrong. you then try to say “take it up with kpmg” because you are unable to engage on the specifics of the issue.

            you seem to be all grandstanding, no substance.

            do try to keep up with the conversation that is actually taking place…

            i cannot speak to your royalties issue. perhaps you structured your financials badly.

            are you a canadian citizen?

            do you also hold us citizenship?

            if one is a canadain citizen (or, as i would be, a st kitts citizen living in canada under treaty) and does not hold us citizenship, this should not have happened to you.

            it certainly would not happen today.

          • One last time before Morganovich takes us for another spin in his magic circular argument machine.

            The blogger reports uncritically that Canada’s tax burden is 46.4 percent lighter than the US.

            Actually, in a comparison of Toronto vs Miami, it’s 27 percent lighter according to KPMG, and a significant chunk of the difference is not taxes at all, but private health insurance benefits paid in Miami but not in Toronto.

            Morganovich says I have the cost factors wrong, but KPMG’s “corporate services” cost analysis is as close as the study gets to telling us anything about BK’s headquarters operation, and BK’s business is collecting fees from franchisees who presumably would not relocate to Oakville.This is yet another problem with using 46.4 percent as gospel. Every company is different.

            So, I ask once again: do you agree that 46.4 percent tax savings should not appear in the blogger’s post without a long list of caveats?

          • todd-

            are you deliberately trying not to make sense?

            what a tangled rat’s nest of nonsense.

            all i said was “BK is going to save a lot in tax by going”

            you have simply made tautological statements, ignored the specific facts, and then tries to keep shifting the debate to the general and away from the specifics.

            you seem unable to hold the basic thread of a conversation.

            the fact that the franchisees are staying is the US is WHY taxes will drop so much.

            do you seriously not get this basic idea?

            i also note that you never seem to respond to actual questions.

            are you a canadian citizen?

            i suspect your royalty analogy is inapt because you were in a different situation.

            you appear to have no idea how an inversion works or how international taxation is applied.

            truly, your bluster to knowledge ratio is breathtaking.

            i have tried to lay out the facts for you here, but you simply will not look at them.

            then, you try to pass off the “individual results may diverge from an average” argument as though it is somehow profound instead of painfully obvious.

            does this pass as intellectual discourse where you live?

            if so, you should confine yourself to speaking to the locals.

            around here, it’s recognized for the joke it is.

            in essence, you have no point, have been caught out, and are trying to wiggle your way into not looking like a buffoon.

            let me give you a hint:

            it’s too late.

          • Took a brief tour through the Canadian tax code.

            Passive income earned abroad but paid in Canada is still taxable as it was 20 years ago and citizenship matters not. I am not Canadian.

            Dividends from active foreign subsidiaries can be passed up tax-free to the Canadian parent if said business income was taxed in the home country on a basis acceptable to Canada. The terms are spelled out in a treaty with our neighbors to the north.

            One guesses that BK considers its franchise fees as income for services rendered, ie active rather than passive. But the franchisees are not BK Inc. but rather separate tax entities, and they used the fees to REDUCE their US taxes.

            So your turn. How does BK evade Canadian taxes on fees remitted to Oakville with no US taxation?

            You might also stop ignoring my point and answer my question. The blogger, in jamming together a general study and a specific case, might be seen as legitimizing a tax savings claims that is in fact not applicable in the specific case, no?

          • todd-

            your point about pointing to a general situation and then saying that a specific case is different is as tautological and meaningless as ever.

            i HAVE addressed it, over and over. one can make that point about anything.

            to say “here is a general situation and here is how a company can specifically take advantage of it” is hardly a controversial way to couch a topic.

            in fact, it’s very common.

            your manufactured outrage around it is as bizzare as it is meritless.

            you seem to be trying to pick a fight about nothing.

          • also note:

            you are guilty of precisely what you accuse mark (or the article) of.

            “he other major difference is a 15 percent corporate tax in Canada’s vs the effective 27.5 percent BK paid to the US treasury”

            so, you take the specific case of BKW in the US and then compare it to (oh my paws and whiskers!) the general case in canada.

            bkx pays a lower than statutory rate in the us. why do you assume they will pay the statutory rate in canada, especially as canada has no capital tax? (federally since 2006, and in all provinces since 2012)

            it was precisely the use of that lack of a capital tax that attracted me to look at it. if i know that, be sure the 3G guys and buffet do.

            so, shouldn’t your ” jamming together a general study and a specific case” be held to the same scrutiny to which you try to hold others?

            good for the goose, good for the gander, no?

          • No manufactured outrage, just an observation that the blogger could be more fastidious about statistics.

            Still waiting for your explanation of tax-free BK.

          • Oh boy. third attempt to get this where it belongs.
            What? No explanation? Just to complete your education, Congress applied asset tests to inversion tax deals that take most of the fun out of it, contrary to the notion here that BK is leading a parade north. BK can jump the 49th parallel because its assets are intangible, as are fellow expatriates (mostly to Ireland) in pharmaceuticals and biotech. If BK owned its US outlets, as opposed to franchisees who pay fees to BK, the IRS would say its merger with Tim Horton doesn’t count.
            Now you can say that the American Job Creation Act of 2004 is confiscatory, but it’s kinda hard to say Obama had anything to do with it, eh?

      • Gee, Senor Mason, what difference does it make what reason failing Burger King might use to justify their move to Loon Land? Immigrants from all over the world come to the US with the perhaps unrealized expectation that they’ll have the freedom, that is, “the freedom” to engage in productive economic activity that will improve the lives of themselves and their dependents. Is there something wrong with that? If BK wants to move their home office to Lapland what business is it of yours or mine?

      • “If you don’t like the numbers I cited, take it up with KPMG because that’s where they came from.”

        Todd, the overall tax picture for Toronto over Miami is substantial. KPMG gives a tax index of 51.6% for Toronto and 91.7% for Miami.

        I believe that Burger King/Tim Hortons will be in the corporate services(non-financial) category. For this Toronto ranks #3 for cities and Miami #17.

        Something else to keep in mind is that taxes are still falling in the tax haven known as Canada, so the gaps will increasingly widen

      • What? No explanation? Just to complete your education, Congress applied asset tests to inversion tax deals that take most of the fun out of it, contrary to the notion here that BK is leading a parade north. BK can jump the 49th parallel because its assets are intangible, as are fellow expatriates (mostly to Ireland) in pharmaceuticals and biotech. If BK owned its US outlets, as opposed to franchisees who pay fees to BK, the IRS would say its merger with Tim Horton doesn’t count.
        Now you can say that the American Job Creation Act of 2004 is confiscatory, but it’s kinda hard to say Obama had anything to do with it, eh?

        • “. BK can jump the 49th parallel because its assets are intangible, as are fellow expatriates.”

          Todd jumps the shark.

          If the U.S. Congress does not lower the corp income tax rate the parade north has just begun, which is very unfortunate.

          • Will BK’s royalties, or franchise fees, from foreign operations be taxable in Canada?

            A key part of Canada’s tax competitiveness is territorial taxation — not taxing foreign income of Canadian based businesses.

            So, we find that Burger King, being an Economic Business in Canada will not have its foreign franchise fees being taxed.

            Nope, the U.S. does not a “territorial tax” policy and this needs to be part of an immediate corporate U.S. tax overhaul.

          • Good heavens man. MSFT avoids US taxes because it pays taxes in Ireland, the key here being IT PAYS TAXES IN IRELAND. Similarly BK as a Canadian company may avoid US taxes but nowhere does it say it can avoid taxes in its new home country. Revenue Canada will look at how the money was taxed here and proceed accordingly. Dividends from a US sub to the Canadian parent are in fact taxfree if the BK sub keeps pays US taxes but that means BK KEEPS PAYING US TAXES.

            There’s some benefit to BK to avoid the US’ extraterritorial approach. 48 percent of its revenues are nonUS, and the subset of foreign business that isn’t Canadian either and is taxed in the home country won’t be taxed again in Canada.

            http://www.theglobeandmail.com/report-on-business/food-and-taxes-how-a-canadian-address-can-boost-burger-kings-bottom-line/article20201091/

            That the US taxes global income sucks, almost as much as Canadians paying 15 percent more for a Chrysler built in Brampton Ont than an American does next door in Buffalo. Or waiting umpteen weeks for MSFT to pay an account receivable. The underlying principle in each of these cases: It gets done that way because the perpetrator can get away with it.

            I suspect that will change — not because of BK but because all the money piling up offshore. Not today, and not because of BK.

          • “Similarly BK as a Canadian company may avoid US taxes but nowhere does it say it can avoid taxes in its new home country.”

            Tax Layers

            “Only income earned within Canada is taxed by the government, said Alex Edwards, assistant professor at the University of Toronto’s Rotman School of Management, noting this territorial system is the more common form of corporate taxation. In the U.S., profits from foreign operations in lower-tax regions are topped up to the federal rate when they’re repatriated, he said.”

            “Dividends from a US sub to the Canadian parent are in fact taxfree if the BK sub keeps pays US taxes but that means BK KEEPS PAYING US TAXES.”

            “The real bang for the buck here is potential tax savings on Burger King’s non-U.S. earnings,” Edwards said by phone yesterday. “It’s not just the earnings in Canada, it’s the earnings everywhere in the world that might be able to escape that second layer of U.S. tax.”

  4. It is clear that Corporate America will abandon the United States either as a headquarters or production base if profits are greater offshore. Fiduciary obligations to shareholders and investors make this an inevitable result.
    Patriotism is for citizens not corporations. Citizens should vote to make their home country friendly to business.
    That said, should corporations have the ability to make unlimited campaign contributions given that they will put corporate interests in front of the national interest?

    • Who says that individuals that contribute to political campaigns put the national interest (whatever that is) ahead of their own personal interests?

      • Who says that individuals that contribute to political campaigns put the national interest (whatever that is) ahead of their own personal interests?

        Yeah, really. It’s almost certainly the exact opposite.

        • Perhaps the answer is not to limit donations, but rather limit the government’s ability to put corporate or personal interests above the national interest…

          Perhaps limiting the government to certain numbered duties, enumerated powers as it were, would go far to solving this problem.

          • “Perhaps limiting the government to certain numbered duties, enumerated powers as it were, would go far to solving this problem.”

            if only our founders had thought of that…

            oh, wait..

            the only way to take influence peddling out of government is to take influence away from government.

            it really is that simply.

          • The only problem with that, is that government has to enforce the numbered duties of government. The world would be a much simpler place if Public Choice Theory was never a thing.

          • ‘Twould also be a much more simple place is gravity or physics was not a real thing. Alas, that is not the world we live in.

          • Jon

            Perhaps the answer is not to limit donations, but rather limit the government’s ability to put corporate or personal interests above the national interest…

            I think that’s been tried. It didn’t last long though, human nature being what it is. What was that thing Lord Acton said about power? It’s right on the tip of my tongue.

            Limiting government power seems like the best choice, though.

      • Excellent point.

        But—a citizen can choose to be a patriot, and put the national interest in front of personal or special interest.

        A corporation cannot—by charter and fiduciary obligation, it must first honor higher profits, even if it means selling America down the river.

        Which raises another question: We are told the reason for our huge $1 trillion a year defense spending is to preserve a global platform for business, and especially multi-nationals.

        But the multi-nationals are saying, “Thank you, we will take the access to markets…but we are offshoring so we do not have to pay taxes to support your military.”

        Sheesh, even Mitt Romney said that. He said he was for more defense spending—but out of your pocket, as he was putting his money into Cayman Island banks.

        I cannot condemn Corporate America for turning their backs on this nation. They have become multi-nationals, and their loyalty is to profits and not the USA. They are, by law and charter, amoral organizations.

        But Mitt Romney? And he wanted to be President?

  5. The KPMG study says that the effective corporate income tax rate in Canada is 7% whereas in the U.S. it is 28%. I would agree with the U.S. data point. The Canada number is not believable on two grounds:

    1. The statutory corporate income tax rate in Canada, depending on jurisdiction, is 25-27%.
    2. If corporate income tax payments are are so low in Canada relative to the U.S., corporate tax receipts as a percentage of GDP should be substantially lower than in the U.S. They are not.

    • 1. The statutory corporate income tax rate in Canada, depending on jurisdiction, is 25-27%.

      Thus the difference between statutory and effective.

      2. If corporate income tax payments are are so low in Canada relative to the U.S., corporate tax receipts as a percentage of GDP should be substantially lower than in the U.S. They are not.

      Depends where you are on the Laffer Curve.

  6. Depends where you are on the Laffer Curve

    Could you get any more nonresponsive? The KPMG Canada CIT effective rate of 7% is flawed. Burger King should follow KPMG’s advice and move its head office from Miami to Baton Rouge which has a lower TETR than Toronto.

    • Quite the contrary. It was quite responsive, as per my following mathematical example.

      Remember that a decline in a proportion does not necessarily mean a decline in the total or in any component of the proportion.

      • KPMG’s CIT effective rate in Canada of 7% is grossly understated. My proof remains unchallenged. Your proof is nonexistent.

        In fiscal year 2013 the CAN federal government collected $35 billion in CIT or 1.9% of GDP [See Fiscal Reference Tables 3 & 4]. In fiscal year 2013 the U.S. federal government collected $274 billion in CIT or 1.6% of GDP [Look it up yourself at the CBO Historical Budget Data Table 2]. In addition and FYI, CAN provinces collect more CIT per dollar of pre-tax income than U.S. states do. KPMG must be of the view that CAN firms are at least 4x more profitable relative to GDP than U.S. firms.

          • Also, not entirely sure how you can say your “proof remains unchallenged” when 1) I have been challenging it the whole time and 2) you’ve not proved anything. I mean, your logic is wrong and you are trying to prove your point by using irrelevant statistics incorrectly.

            I mean, hey, you want to keep hammering this topic, knock yourself out. I’m pretty much done responding anyway.

  7. To be effective, Obama’s plan to keep companies from moving to low-tax Canada should include installing along our Canadian border a 3,000 miles long string of machine gun towers and mine fields to keep Ahmericans in AMERICA (well, whatever) — Land of the Free!

    Think about it –it would be the first effective Obama jobs stimulus program!

    NOTE TO OBAMA — I’m KIDDING, you BLOCKHEAD!

    • To be effective, Obama’s plan to keep companies from moving to low-tax Canada should include installing along our Canadian border…

      I’m not sure this move requires that anything physical crosses the border.

      • Probably true, but I doubt there’s a (former) U.S. company that does not have extensive movement of management and key personnel back and forth between the two countries. We could capture these criminals at the airports, I suspect — and deal with them Chicago-style (teaching them about the Constitution, no doubt).

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