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Burger King to See Tax Breaks After Move to Canada

SPRINGFIELD, Mo. -- Burger King is acquiring Canadian coffee and pastry company Tim Hortons and moving its headquarters to Canada.
SPRINGFIELD, Mo. -- Burger King is acquiring Canadian coffee and pastry company Tim Hortons and moving its headquarters to Canada.

A corporate tax break will be a big benefit for the company, but there could be more to the decision.

Burger King stock rose nearly 20 percent Monday after the announcement.

Analysts said this move could end up saving Burger King billions in taxes each year.

Experts believe the company is trying to lower its tax burden, which is very high as an American company with locations in other countries.

"It's a matter of income Burger King earns in France that has nothing to do with America, they have to pay income taxes on that to the United States," MSU Economist Dr. David Mitchell said.

Mitchell said that set-up of the American corporate tax system, plus America's high corporate tax rate of up to 40 percent, makes it appealing for companies to locate in other countries.

That's a move called tax inversion, which has been common for years.

"So they're paying that 40 percent rate on all earnings across the entire world," he said, "When you have these types of differentials between tax rates it just makes sense to do that."

But there could be more strategy behind acquiring a coffee company than just a tax break.

They could be moving to compete with fast food gourmet items, like McDonald's does with McCafe.

"So it's possible they are basically trying to broaden their market, get something that's a little higher margin, some high end coffees," he said, "It probably is mostly though trying to avoid taxes."

There is some public backlash against the company, with people believing it's avoiding paying its fair share.

But Mitchell explains Burger King would still be paying the American tax rate on all American income, just not income earned in other countries.

"You could make the argument that they are moving towards paying their fair share," he said.

This tax inversion is a pretty common move in the corporate world.

Since 2012, at least 21 American companies have announced or completed similar deals.

This of course takes tax dollars away from the United States.

So there have been American politicians, including President Obama, speaking out against these tax inversion moves.

Burger King is owned by 3G Capital Management which is a Brazilian private-equity group.
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