How Burger King Used Tax Inversion to Avoid Taxes

On August 24, 2014, the American company Burger King (then listed on the U.S. stock exchange under the ticker BKW) announced its acquisition of the Canadian coffee and fast-food chain Tim Hortons (THI). The next day, they disclosed the acquisition price—CAD 12.5 billion (approximately USD 11.4 billion at the time). Typically, in such transactions, Tim Hortons would become a subsidiary of Burger King, meaning Burger King would remain a U.S.-based parent company. However, this deal was different. Following the transaction, Burger King and Tim Hortons both became subsidiaries of a new Canadian parent company, effectively transforming Burger King from a U.S.-based corporation into a Canadian-based corporation.

This strategy, where the acquiring company becomes a subsidiary of a parent company in another country, is called tax inversion. It allows a corporate group to relocate its tax residency to another country without incurring adverse tax consequences during the process. Furthermore, since the new parent company is often based in a jurisdiction with lower tax rates than the original country, the group can reduce its overall tax burden, particularly at the shareholder level.

The world’s first tax inversion case occurred in 1983 with McDermott International. Since then, there have been numerous tax inversion cases globally, most of which have occurred in the United States. Due to the negative impact of tax inversions, the U.S. government introduced reforms in 2004, requiring that tax inversions must have substantial business justifications. However, as the saying goes, “where there’s a will, there’s a way.” Many companies used major business transactions, such as mergers and acquisitions, to achieve tax inversions. Burger King’s case is one of the more high-profile examples.

In 2015, the U.S. government began prohibiting certain companies from using mergers and acquisitions to achieve tax inversions. Additionally, after the Tax Cuts and Jobs Act (TCJA) was passed in 2017 under President Trump, the motivation for U.S. multinational corporations to pursue tax inversions largely disappeared. As a result, there have been virtually no significant tax inversion cases in recent years. However, understanding this famous chapter in tax history remains valuable, as it could serve as a potential strategy to consider in future mergers and acquisitions.