Burger King has maneuvered to cut U.S. tax bill for years

Tue Sep 2, 2014 8:10am EDT
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By Tom Bergin

LONDON (Reuters) - Burger King may have taken a lot of flack in the past week for a deal that should curb its U.S. tax bill but in many ways it is consistent with the burger chain’s aggressive tax-reduction strategies in recent years.

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: Quote), Starbucks Corp (SBUX.O: Quote) and Dunkin Brands Group Inc (DNKN.O: Quote). KFC and Pizza Hut owner Yum Brands (YUM.N: Quote) 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.   Continued...

A man talks on his phone underneath a Burger King logo outside the restaurant in the Brooklyn borough of New York August 25, 2014.  REUTERS/Carlo Allegri