Good morning, Quartz readers!
There are four Burger King restaurants in Grand Cayman. When you buy a Whopper there for a Cayman Island dollar, the company pockets all of it tax-free (after paying for the cows). Back in the United States, where Burger King was founded 60 years ago on the premise that beef could be rapidly cooked, the government expects some 35% of the profits. And if Burger King tried to bring home that money from the Caribbean, the US would take a third of that, too.
No wonder American corporations are keeping trillions of dollars in profits overseas, taking advantage of a glaring exception in US tax law. And no wonder Burger King decided this week to pack up its flame broilers and headquarter them somewhere else—in Ontario, Canada, home to another fast food chain, Tim Hortons, with which it intends to merge. The combined company won’t entirely avoid US taxes this way, but it will certainly pay less for its expansion outside North America.
Tax inversions were once a trick played by pharmaceutical companies. Now they are common enough to apply to burgers and doughnuts, too. They even come with the blessing of Warren Buffett, whose Berkshire Hathaway is providing $3 billion in financing for the deal. Politicians may call these deals unpatriotic, but no one has the temerity to stop them.
Clearly, the US needs to write some logic into its tax code. American companies avoid levies largely through loopholes of the country’s own making. Shares of Burger King and Tim Hortons both shot up after news of the merger leaked, which is how investors make clear that they want to see more of this. The US can just watch its corporations stash profits overseas and walk away entirely, or it can devise some rules and incentives to fix the problem. —Zachary M. Seward
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