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Saturday, August 30, 2014

They Hypocrisy of the Debate Over "Inversions"

What a circus, folks.  What a show.

The cross-border marriage between Burger King (US) and Tim Hortons (Canada) with the happy couple opting for a home in the North has really flipped people's switches in the US.  The new buzz word is "inversions" and thank God for the Internet because in a paper world way too many trees would have to die just so that every pundit from Paris to Poughkeepsie can throw out his .02.

The Americans in the homeland are screaming for Something to be Done and Obama has come out swinging saying that he will do what he can to "discourage" American companies from marrying out and setting up shop in somebody else's tax jurisdiction.  I mean, we can't have that, right?

Do the American People, their elected representatives and their President understand the utter hypocrisy of their position?  I doubt it and I'm feeling frisky this morning (too much coffee?) so allow me to have some fun today at their expense.

Here's the argument three US lawmakers (including the now infamous Senator Reed) are making for strongly discouraging US companies from leaving the US :
“Inverted corporations take advantage of all the things American tax dollars provide – from tax credits for research and development, investments in transportation infrastructure, and strong patent and copyright protections..." 
Now just replace "American" in that sentence with "French", "German", "Japanese" or any other nationality. What about their tax base and talent?  Any consideration whatsoever here?  Not at all.

So when it's a foreign company (or talented migrant) that wants to set up in the US, then Americans slap themselves on the back and smugly point out that America is clearly still the most popular girl in high school and destined to be Prom Queen forever.  But when the girl says, "Mom and Dad, I'm moving to Canada" because she thinks she can have a better HEA (Happily Every After) well, that's just wrong.

I'd have a lot more respect for the American "inversions are perversions" argument if its proponents took their position to its logical conclusion and said this to any company (or individual) wanting to move to the US from abroad,
 "You know, that's just not fair to your home country and its taxpayers.  You should stay home with your family and friends who have nurtured you from the cradle, invested in your education, and protected you as you grew and become successful.  The world really would be a better place if all good boys and girls stayed home where they belong and we want to step up and lead the way.  So here's your US certificate of incorporation and/or your Green Card.  Thank you for thinking of us.  Have a nice life." 
For the best article I read about this (one that actually would be worth killing a tree or two), see Megan McArdle's  Burger King and the Whopper about Taxes.  Her point about the US tax system is well made.  The US stoutly defends its unique citizenship-based taxation system in an residence-based taxation world.  Frankly there is a certain insanity in the US position on this that says it's the rest of the world that needs to change and not the US.  All I can say is, "Good luck with that."


Catherine said...

I am surprised the focus is on Burger King. What about those other (and larger) mega companies like Apple operating from their own little tax havens? This is not a new thing at all. Is the shocking bit that they went to Canada? We're so friendly up here, who wouldn't want to hop over? ;)

Unknown said...

Burger King is owned by a Brazilian Invetment company.

Victoria FERAUGE said...

Yeah, Catherin, I can't quite figure out this new view of Canada as a huge "tax haven." What is up with that?

Jim, Are you kidding? Seriously?

P. Moore said...

Actually, Victoria, James is basically correct. Burger King is a publicly traded company, but 3G Capital, a Brazilian Investment company owns well over 50%.

You make a great point about the hypocrisy of the politicians here, but I am afraid the Washington politicians are an easy target when it comes to that charge. Nonetheless, I hope writers like you keep documenting the creative ways they demonstrate their hypocrisy. Thanks for the post.

Unknown said...

So the whole meme about Burger King is the same as that of Saverin----really a Brazilian that wants to move on with its life---away from where it is.

This president leads a national flock in the same way as an abusive spouse whose wife is finally leaving him. He tells everybody that his wife is "unfaithful".

This is the new world, where a president can put labels onto entities and persons:


Unknown said...

The corporate tax situation should not be conflated with our individual expat tax and FATCA situation. They are superficially similar but when one digs down into the very complicated nitty-gritty of corporate taxes one finds situations ranging from gross unfairness to nearly criminal abuse.

One key difference is that most individuals earn their salaries at one workplace on one side of the border while Corps have operational income on both (many) sides of the border(s). This gives the corp the opportunity to transfer earnings from one country to the other via various mechanisms including intra-company transfer pricing. This kind of income shifting opportunity only exists for wealthy individuals who can move their investment earnings from country; but not for the great majority who cannot move their workplace.

Another important difference is that corp can defer actually paying US taxes until they move the money to the US. Individuals owe the tax in the year it is earned.

Then there is the situation of Tran- or Supra- National companies like Burger King whose national roots are ambiguous.

I prefer to let the corporate lawyers deal with this and concentrate my efforts on the individual expat TAX and FATCA problems.

IMHO we can only harm our (the individual's) cause by associating our with corporate tax complaints because the corporate position is far from clear-cut.

Northerndar said...

I love what you wrote and how you described this Horton and King marriage. Thanks also for that great Bloomberg article on inversion. I now understand clearly what it is about. Most people do not. I can see clearly now. I agree with keeping FATCA separate from inversion. I am happy I have my divorce fom US citizenship but I m still in the fight against FATCA like you and many others.

Bruce Gunia said...

This seems to me to be much ado about nothing, really and, like you, I found news that Canada might be a tax haven somewhat flabbergasting.

Personally, I think it's some sort of conspiracy to incite an obesity epidemic north of the border and thereby take the focus off American waistlines

DL NELSON said...

My take on it is different. US corporations have been declared persons. If they are persons they should be forced to report and pay taxes on their worldwide income just like we two-legged persons must do.

If you have the advantage of being a "person" you should accept the responsibilities and disadvantages.

Taxing Burger King or any other inverted company on profits earned in the country where they are earned, is another solution.

Victoria FERAUGE said...

Jim, Yes, you make a good point. The two situations are not the same. "Natural persons" are not the same as corporate persons.

And the misunderstandings of the behavior of international companies is rife in the US (and other places too).

I've worked for several with different structures and different cultures (yep, company culture is really important here). And some had very good reasons for not wanting to be known as a US or a French company in the countries where they operated.

If countries have brands (Simon Anholt) then companies have to think hard about their association with them. If the US is viewed with ambivalence in a particular place, that isn't going to help a US company trying to do business there. It's a hindrance, not a help.

To use a non-US example, I worked for a security company here in France with US roots. In the US it's an old and venerable company with a strong US brand. In France, few people I met knew that. They thought that the French branch of this US company was a purely FRENCH company.

As for the money that US companies are holding outside the US there are many other reasons why that money stays out there that have very little to do with taxes. The profits are re-invested to grow the business in a particular country or region. It make no sense to send the money to the US and then send it back out again to fund expansion. If the French subsidiary is making a nice profit, that money is used to grow the business in EMEA.