Burger King To Buy Tim Hortons Chain For About $11.4 Billion

Vehicles drive passed a Burger King Worldwide Inc. restaurant in Peoria, Illinois, U.S., on Tuesday, Aug. 26, 2014. Burger King Worldwide Inc. agreed to acquire Tim Hortons Inc. for about C$12.5 billion ($11.4 billion) in a deal that creates the third-largest fast-food company and moves its headquarters to Canada. Photographer: Daniel Acker/Bloomberg

(Daniel Acker)

What’s a more true blue, red-blooded, all-American type institution than Burger King? Always there for us with a whopper, fries, a shake or hot coffee. An American perennial we felt we could always count on.

Kind of the way Americans all those years ago felt about Benedict Arnold.

Like Arnold, Burger King has gone over to the Red Coats…. well to their Canadian cousins actually. But the impact is the same, lots of outrage and accusations approaching treason.

The reason for Burger King’s defection, it turns out, is pretty much the same as Arnold’s -- money.

Benny's treason was driven in large part by his beautiful young wife, Peggy Shippen, who lusted for the lights and luxuries of London and couldn't wait to shake the dust of colonial America. Likewise, Burger King's disloyalty was driven by a lust for money, namely lower tax costs.

One is just as contemptible as the other. But just as we couldn’t stop Arnold neither can we stop the Burger King bug out. What it’s doing is perfectly legal. And it’s hardly alone.

Estimates vary as to how many American firms have switched their legal domiciles in a process called “inversion.” One study counts at least 30 companies that have jumped the border in the last two years; another has the departure figure over the last decade at roughly 70 corporate turncoats.

The implications for ordinary Americans are not inconsiderable. “With every new corporate inversion,” Sen. Dick Durban, an Illinois Democrat, warned, “the tax burden increases on the rest of us to pay what these corporations don’t.”

In this globalized world with few or no real economic borders, we'd best gear up for more of the same. It's all the rage among corporate tax lawyers these days.

In truth, much of the beef with Burger King is the product of misunderstanding. For one thing, many of these departing companies, including Burger King, are operated by an ownership that's not altogether American or not American at all.

For another, their “loyalty,” if we can call it that, is legally owed not to the country but, as I’m told by my lawyer friends (I actually have some), to its stockholders.

Burger King, for example, is actually owned by 3G Capital Management, a Brazilian private equity firm, with offices in New York City but also in Rio de Janeiro. This kind of trans-national ownership of what are thought to be iconic American corporations is not new, but it's growing fast.

A large investor in the New York Times, for example, is a Mexican billionaire, Carlos Slim, who ponied up a reported $250 million to help the paper over in a financial hurdle. It’s that kind of world today.

Keeping track of the national loyalty of multinational corporations, to the extent they have is any, is like following the pea in a Three Card Monte game. They operate in many countries and pay taxes to most (or to some) but are governed as much by their own boards of directors as by the laws of their host counties.

Corporate board governance, of course, is an oxymoron. Too often it involves interlocking directorates whose members regularly rubber-stamp each other’s policies and inflated compensation packages.

What it comes down to is that the more countries a company operates in the harder is becomes to track its actions, its income or it liabilities, including its tax obligations.

The growing popularity of corporation "inversion" (another bit of economic gobbledygook) has even stirred our inert Congress to propose taking action, though exactly what action it can't quite decide. You expected more?

It also poses at least one interesting question. By moving to a foreign domicile -- surrendering their U. S. citizenship as Durbin put it -- do these corporate ex-pats lose the right to continue spending millions to influence American politics, a right the U.S. Supreme Court's Republican majority accorded them in the infamous Citizen United decision?



In a larger sense, corporate "inversion" is part of a too little noted 21st century phenomenon -- the decline of the authority of the nation-state.

We can see it in the push for secession by provinces in parts of Europe (e.g. Britain, Spain, Belgium), in the breakup of states all across the Muslim Arab Middle East, and even in Western China.

In the West this vacuum of nation-state power and influence in ordinary lives is being filled in large part by that creature of the 21st century -- the monster multinational corporation.

John Farmer can be reached at jfarmer@starledger.com.

John Farmer may be reached at jfarmer@starledger.com

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