Corporate Tax Evasion: Burger King Paying Drastically Lower Tax Rate

Last updated on September 2, 2023

Burger King is now among the many well-known multinational companies that are accused of legally evading taxes. It’s now common knowledge that for many companies, the 35% corporate tax rate is just a number. Reuters shares the story of how Burger King has been paying less in taxes by using sophisticated means of circumvention.

“Some U.S. lawmakers and other critics attacked the company that is the home of the Whopper for deciding to move its tax base to Canada from the U.S. through its proposed purchase of Oakville, Ontario-based coffee and doughnut chain Tim Hortons (THI.TO). They say it will allow Burger King (BKW.N) to avoid paying some U.S. taxes.

“That would be nothing new. A Reuters analysis of Burger King’s regulatory filings in the U.S. and overseas, which was also reviewed by accounting experts, shows that it has been making major efforts to reduce its U.S. tax bill for some time.

“By massaging down U.S. taxable profits while maximizing the profits it reports in low-tax jurisdictions overseas, Burger King is able to operate one of the most tax-efficient businesses in the U.S. fast-food industry.

“The chain’s effective tax rate of 26 percent over the past three years compares with rates above 31 percent at McDonalds Corp (MCD.N), Starbucks Corp (SBUX.O) and Dunkin Brands Group Inc (DNKN.O). KFC and Pizza Hut owner Yum Brands (YUM.N) did have a similar tax rate to Burger King though this reflects the 74 pct of its revenues that were generated outside the U.S., in markets where tax rates are typically around 25 percent.

“The Burger King rate is 30 percent lower than the average tax rate it paid in the five years before it was bought in 2010 by private equity group 3G, still the company’s majority shareholder.

“The accounting experts say the Canadian move will allow Burger King to double-down on those efforts as it will open up new tax-saving opportunities for the company. It could, for example, apply the tax structures it currently employs in major markets like Germany and Britain, and which allow the group to operate almost tax free in those places, to its business in the United States, they said.

“And that could mean Uncle Sam will lose corporate tax income that Burger King would have to pay under its current structure.”

This type of strategy is illustrative of legal tax evasion. There’s currently a great deal of debate over whether the tax laws should be changed to prevent these kinds of tactics. Reuters shares the response of Burger King.

“Burger King declined to comment on its current U.S. tax arrangements. But it has said the so-called ‘inversion’ deal to buy Tim Hortons for $11.5 billion, and move the headquarters to Canada, was based on Canada being the combined company’s biggest market. It said the deal was about international expansion – particularly of the Tim Hortons’ brand and not about tax savings.

“We don’t expect our tax rate to change materially. As I said this transaction is not really about tax, it’s about growth,” Chief Executive Daniel Schwartz said in a call with analysts last week.”