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Taxman’s Taken All My Dough

The tax man’s taken all my dough, And left me in my stately home,
Lazing on a sunny afternoon. And I can’t sail my yacht,
He’s taken everything I’ve got,All I’ve got’s this sunny afternoon. (Kinks, Sunny Afternoon).
If you are Burger King, you want more than a sunny afternoon, and thanks to something called a “tax inversion”, BK can get a sunny day, all day.
kinks sunny afternoonBurger King is merging with a company called Tim Hortons, based in Canada. The resulting move could save BK millions in U.S. taxes. Why? Because of the practice called tax inversions.
Tax inversion is a relatively new phenomena, created as other countries have lowered their corporate tax rates to an average rate far lower than the U.S. rate. But that isn’t it alone. The other part is that it matters where the income is earned.
Where you earn income matters. If you live in Georgia, but 33% of the time you earn your living in Texas where you also reside, you can split the taxes taking advantage of Texas’ lower tax rate (0%) on the income earned there versus Georgia’s 6%. Is it Un-Georgian to take advantage of 1/3 of your income being untaxed in Texas? There is nothing to prevent you from paying Georgia extra income tax, so do you do it?
U.S. corporate tax policy requires BK to pay taxes on ALL of their income, foreign or domestic, at U.S. tax rates. If BK moves to Canada, they can use Canada’s lower tax rate to pay income on foreign income instead of the world’s highest corporate tax rate in the United States (OECD States). Yet if BK does that, President Obama and his supporters claim that BK is being anti-American. That publicity then causes well meaning, though uninformed, Americans to say they’ll never eat at BK again.
If I owned BK stock, I would be less than pleased with BK management if they didn’t move the corporate headquarters to Canada. The company’s job, as it concerns me, is to maximize income so that I have the best return on investment, over time, possible. BK management isn’t supposed to be real worked up about helping Americans continue to feed at the trough of the public dole, but instead they are supposed to make it so Americans can eat at BK by offering good food at lower prices. Paying higher taxes because of stupid U.S. tax policy defeats BK’s purpose and, in fact, raises prices.
Want to solve the problem of corporation’s moving out? Eliminate the taxing of corporation income! You’d have to do some other things, like establish laws that don’t allow corporations to horde wealth, require meaningful distributions of retained income and require full corporate disclosures. Taxes would still be paid, but instead of idiotic corporate tax policies, we’d fall back to our idiotic personal tax policies and then maybe we’d change those too.
Reminder: The American Revolution’s flashpoint was a 3% tax on tea.
Kelly Burke, master attorney, former district attorney and magistrate judge, is engaged in private practice. He focuses on personal injury cases and corporate litigation. These articles are not designed to give legal advice, but are designed to inform the public about how the law affects their daily lives. Contact Kelly at kelly@burkelasseterllc.com to comment on this article or suggest articles about the law that you’d like to see.

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