Nick Shaxson ■ Burger King’s “shift” from the U.S. to Canada: a move that will cost both countries
From Prem Sikka:
“The US$11 billion merger of Burger King and Canadian coffee and doughnuts chain Tim Hortons is the latest example of a tax inversion move. The deal will see BK transfer its company headquarters from the US to Canada and is clearly not driven just by a quest for control of the markets, but also by tax considerations.”
Rolling Stone has a good in-depth investigation of the issue, here.
It bears repeating that these tax inversions do nothing to foster genuine entrepreneurship and innovation: they are straightforward examples of wasteful subsidy-chasing. Make no mistakes: the race to the bottom on tax does not stop at zero.
There has rightly been an unholy clamour in the United States about the harm that it will do to the country: increasing inequality, making poorer people pay the taxes that Burger King won’t pay, subverting demoracy, and other nice things. Among many other things, it’s promoted campaigns such as Now Burger King’s Renouncing U.S. Citizenship – Let’s Eat Somewhere Else. Quite right too. There’s the usual huffing and puffing from corporate shills twisting themselves into knots trying to defend the indefensible.
One of the things that has been less remarked upon is the fact that the company’s “move” to Canada is also not going to the darnedest bit of good to that country. In fact, if Canada’s own tax giveaways are taken into account – giveaways designed to attract the likes of Burger King – it’s a big loser from this game. Tax is not a cost to an economy but a transfer within it: Canada’s tax regime is not obviously “competitive” in any meaningful way. As this analysis notes:
“Canada sees none of that money and essentially gains nothing from this deal.”
And here’s some more specific food for thought:
“The general federal corporate income tax rate stood at 28% in 2000. It was cut to 21% under the federal Liberals, and then cut in stages, from 21% to 15%, under the Conservatives. The most recent cut was from 16.5% to 15%.
The after-tax profit margins of non-financial industries in Canada increased to 8.1 per cent in 2011 from 6.9 per cent in 2000.
However, business spending on research and development in Canada – a key driver of new jobs – represented only 0.88 per cent of GDP in 2012, down from 1.13 per cent of GDP in 2000. That’s roughly half the level found in the U.S.
Canadian employers also spend less on training and development than U.S. firms. And Canada’s productivity growth has lagged behind other advanced economies and way behind the U.S.
Meanwhile, the impact of those cuts on government revenue has been huge. In 2012, Ottawa collected $34.9 billion in corporate income tax revenues, based on a corporate income tax rate of 15 per cent. Had the rate remained at 21 per cent, revenue would be $13 billion higher.
In Ontario, in just the past five years, reductions in the corporate tax rate, the elimination of the capital tax on banks, and the implementation of business rebates under the new Ontario HST, have cost the Ontario treasury more than $6 billion!
With the additional government revenue that could have been raised if these corporate tax cuts hadn’t been implemented, investments could have made in everything from transit and daycare to training and development programs. These measures would help the economy expand, making Canada — and Ontario — a more attractive place to do business.”
Now watch TJN’s Jim Henry on the subject, on Democracy Now.