
Tim Hortons agrees to Burger King offer for $94 a share - oulipian
http://www.cbc.ca/news/business/tim-hortons-agrees-to-burger-king-offer-for-94-a-share-1.2746948
======
somberi
Tim Hortons has been owned by a large U.S. chain before. It was spun off from
Wendy’s in 2006 and became a publicly listed company that is now widely held
by Canadian financial institutions, without one controlling shareholder
(Quoting from The Star).

Reproducing relevant parts from an recent article from The Economist:

America’s corporate tax has two horrible flaws. The first is the tax rate,
which at 35% is the highest among the 34 mostly rich-country members of the
OECD. Yet it raises less revenue than the OECD average thanks to myriad
loopholes and tax breaks aimed at everything from machinery investment to
NASCAR race tracks. Last year these breaks cost $150 billion in forgone
revenue, more than half of what America collected in total corporate taxes.

The second flaw is that America levies tax on a company’s income no matter
where in the world it is earned. In contrast, every other large rich country
taxes only income earned within its borders. Here, too, America’s system is
absurdly ineffective at collecting money. Firms do not have to pay tax on
foreign profits until they bring them back home. Not surprisingly, many do
not: American multinationals have some $2 trillion sitting on their foreign
units’ balance-sheets, and growing.

The real solution is to lower the corporate rate, eliminate tax breaks and
move America from a worldwide system to a territorial one.

~~~
bellerocky
I've never heard anyone say that American corporations pay too much taxes
before. That's a first. It's always that they're getting away with paying not
enough.

~~~
DSMan195276
Strictly speaking, that's partly what he said (IE. The tax rate is much
higher, however loopholes means they end-up with much less tax in the end).
Lowering the tax rate could still result in companies overall paying more tax
if tax breaks are removed.

------
apendleton
The real story here is in the nature of the acquisition, a so-called
"inversion" that will create a combined Canadian, rather than American,
company, which is likely to substantially reduce Burger King's corporate tax
liability.

~~~
Alupis
So? -- Seems like a smart business move, if that is really the case.

I'm getting tired of people trying to name-n-shame companies that are leaving
the US in favor of substantially better tax laws.

Instead of groaning and trying to patronize these companies with some sort of
nationalist pride, how about we do something about the damn tax laws that are
making companies _want_ to leave in the first place.

~~~
sgift
Sure, because a race to the bottom (the best tax rate from a companys
perspective? 0%) is exactly what the world needs. I've never understood why
companies should only be liable to taxes in the country they are incorporated
in. You do business here? Then you pay tax here.

Should be easy to fix. Somehow it isn't.

~~~
DSMan195276
While I agree with you, on the flip side the alternative is that they don't
sell their goods here, and people wouldn't be very happy about that. You have
to draw a line somewhere to decide what's a reasonable price/tax/etc. for
everybody, but it's not really an easy thing to do.

~~~
roc
> _" the flip side the alternative is that they don't sell their goods here"_

That's a silly concern. Businesses do not forgo profit simply because they'd
prefer if there were _more_. They _always_ prefer if there were more. And yet
they still seek the profit that's available. So long as cost/benefit suggests
the US is a profitable market, they will continue to sell their goods here.

The only "risk" of corporations "taking their ball and going home", is if the
United States pursued a transparently self-destructive tax rate on foreign-
based corporations. Which there is absolutely no reason to expect would even
enter rational conversation.

Imagine a husband and wife are talking about what car they should buy next and
they disagree on the budget. The analogous case to a tax rate so high
corporations leave the US market, is the husband deciding to burn the house
down so that there's no garage and no money at all.

While that's certainly a _possible_ alternative to negotiating their
differences, discussing that alternative is, at best, silly. And attempting to
ascribe serious weight to the possibility is downright intellectually
dishonest.

~~~
DSMan195276
I have to disagree. They will go other places if those places aren't going to
tax them as much and they expect a similar return. Obviously with Burger King,
they're basically everywhere already so it doesn't matter as much, but if the
profit margin in the US is smaller then other countries because of tax they'll
consider putting stores somewhere else if it's more profitable.

That said, IMO the concern with them selling their goods somewhere else isn't
that we won't be able to eat their burgers, but that they employ tons of
people at their stores. People are going to be pissed if Burger King decides
they're going to close down their slower stores in the US and open some new
stores elsewhere that doesn't have tax because they'll end-up making more.

I agree in that we _could_ put a tax in place without anything imploding, they
aren't just going to run away obviously. The question is more can we implement
a tax which would be worth the money we'd make off of it without it resulting
in Burger King closing places around the country because they're not
profitable anymore.

~~~
roc
Both the possibility that corporations may not come to the US market, or may
only come to the US market after having expanded into other, more-profitable
markets require an assumption that the US would (substantially) _raise_ taxes
above the current level.

We're hypothetically setting out to close a loophole that results in two
distinct effective rates, a lower rate A for foreign corporations and a higher
rate B for US-based corporations.

So, again, why should we spend any time worrying about what might happen if we
were to introduce an _even higher_ rate C? No-one's talking about that. It's
not on the table. It's not remotely politically plausible. It's not even a
thing anyone's seriously proposed.

Talking about it is either entirely besides the point, or a motivated attempt
to conflate closing the loophole with raising rates to C, to scare people away
from trying to close the loophole.

------
bhouston
The growth potential for Tim Hortons seems limited in my opinion -- it will
continue to fill each corner of Canada, but we already know that and this is
priced into its existing valuation. It dominantes Canada but that is because
it is seen as part of Canadiana. It's attempts to expand into the US have
generally not succeeded.[1]

Both are already large enough to have economies of scale in terms of
purchasing power, thus I do not see the reason for this outside of tax
savings.

Strangely, a lot of Tim Hortons in Canada share buildings with Wendy's. Thus
there is some cross pollination there between these two, maybe the strategy is
to take this to the extreme and have nearly each Tim Horton's location be
paired with a Burger King.

BTW some of the richest people I know (10,000 sq ft homes) own Tim Horton
franchises (usually in central locations in major cities.) A boring business
compared to startups, but damn it can be crazy profitable. Might be the time
to snap those locations up if they are going to do some major US expansion.

[1] See
[https://en.wikipedia.org/wiki/Tim_Hortons#Northeastern_US_de...](https://en.wikipedia.org/wiki/Tim_Hortons#Northeastern_US_decline)
But another commenter disputes that and he may have more recent information.

~~~
bluetidepro
> _" It's attempts to expand into the US have generally not succeeded."_

[curious] What parts of the US has it tried expanding in, before? I live in
northern midwest US, and have never seen any around here. Was it more towards
the east or west coast, do you know?

~~~
gdilla
There's a tiny TH in Times Sq NYC, but it's horrible. It's basically a small
counter top in a KFC or something. The donuts aren't made on premises.

~~~
alanfalcon
My understanding is that the TH in Camada have donuts shipped to them from.
Central location rather than baking those on premises. Could be out of date
info though, I don't know. I've wanted to try Tim Hortons just because it's a
central Canadian think in a webcomic I once read (Avalon) but I have never
succumbed to the idea of an insane weekend road trip to canada to try a donut.
I do hope they come to the US near me.

~~~
yazaddaruvala
Honestly, the donuts or the coffee aren't worth the drive. Canadian's love it
for the nostalgia, not because it tastes amazing.

As a kid you went there with your parents. As a teen you went there with your
friends. In highschool/summer, when you didn't have specific plans (@4pm or
@4am), you met up at TH. In university, you'd go get a soup, sandwich and
drink, sick of eating the same thing for the 4th time this week. Now as an
adult you go back home, and if you're meeting old friends, you know you're
meeting at Timmy's. Infact, half the fun is meeting at Timmy's. I think I'm
quoting one of their ads but, for Canadian's "Its [just] where life happens".

Anyways, not saying you shouldn't take the road trip. Long drives with a
friend or two just for some "mediocre" food are the most fun trips. I have one
almost annually for In-N-Out. Definitely don't be expecting ambrosia though,
its awesome because its not special, its just a donut and a double double.

------
ctdonath
Here's hoping this means TH goes national (if not worldwide). We need a TH in
Atlanta; good coffee, donuts better than Krispy Kreme and Dunkin Donuts.

Recalls my notion of a "Franchise In A Box": in a shipping container, pack up
all the necessities for installing/opening a retail store/restaurant overnight
in a typical retail space, and rapid removal if needed. Good for short-use
venue events such as major conventions, or for jumpstarting a business by
opening a functional (albeit minimal) store in available short-lease space
while a more elaborate/complete/larger implementation is being installed.

I mention this as an eager would-be customer, wishing that BK (having more
interest in "lower 48" USA expansion than pre-merger TH) could now just
arrange some short-term leases, rent a "Tim Hortons In A Box", and open a few
test/introductory locations within a few days. I want my Tim's! Moreso, my
Canadian wife wants a Tim's in Atlanta ASAP, and ya gotta realize that to
Canadians, Tim Hortons is like Starbucks deified.

~~~
levesque
I really wouldn't say Tim Hortons' coffe is good... I guess it is a matter of
taste.

~~~
slantyyz
Agreed. Of the "cheap" coffees in Canada, I'd rather drink Country Style or
McDonald's. Well, at least Tim Horton's tastes better than Coffee Time.

------
ipsin
Oddly the article doesn't seem to explain why this sort of deal makes sense:

1) Overseas cash for a U.S. corporation isn't taxed unless it's brought into
the U.S., so if you have a pile of overseas cash, why not buy something?

2) Moving your headquarters to a country with a lower corporate tax rate can
also be good (though I believe Canada has a lower stated corporate tax rate,
I'm not sure how its effective corporate tax rate compares to the U.S.)

[http://en.wikipedia.org/wiki/Tax_inversion](http://en.wikipedia.org/wiki/Tax_inversion)

~~~
tixocloud
Canada has a Effective Corporate Income Tax Rate of 7.2% while the United
States is 28.5% though it looks like it varies from sector to sector.

Source: Appendix A (pg. 22) [http://www.kpmg.com/Ca/en/services/Tax/Focus-on-
Tax/Document...](http://www.kpmg.com/Ca/en/services/Tax/Focus-on-
Tax/Documents/kpmg-focus-on-tax-2014-en.pdf)

~~~
waterside81
That seems to be only Federal rate - you have to pay corporate tax to the
province as well. Tim's is based in Ontario, so they'll likely be paying
closer to 25% once all is said & done.

------
cvburgess
The only real reason for this merger is a corporate inversion[1] - a lot of
companies are doing it. Corporate inversions allow you to move your HQ outside
of the US and reap huge tax benefits.

[1]
[https://en.wikipedia.org/wiki/Corporate_inversion](https://en.wikipedia.org/wiki/Corporate_inversion)

~~~
throwaway283719
Not true. It might be _a_ reason but it's not the only reason, and certainly
not the primary reason.

At the moment Burger King pays tax at a rate of 35% or thereabouts, on _all_
of its income, no matter where it is generated. About half of its income is
from the US, and half is overseas.

After the acquisition, it will still pay 35% tax on all of its income
generated in the US, however it will only pay the local tax rate on its income
generated outside the US. For example, this is about 15% in Canada, and 21% in
the UK (there aren't many countries where corporation tax is above 35%...
Japan comes to mind).

So the saving is the difference between the local corporation tax and the US
corporation tax, on about half of BK's income - if the average worldwide
corporation tax is 20%, so the difference is 15% and half that is 7.5%. So
this is equivalent to reducing the rate of corporation tax in the US from 35%
to 27.5%. While nice, it's not quite the "huge tax benefit" that you mention.

~~~
neilc
> there aren't many countries where corporation tax is above 35%... Japan
> comes to mind

Japan's is only slightly higher, at 35.64%:

[http://www.kpmg.com/global/en/services/tax/tax-tools-and-
res...](http://www.kpmg.com/global/en/services/tax/tax-tools-and-
resources/pages/corporate-tax-rates-table.aspx)

but that will actually be cut below 30% in the near future:

[http://money.cnn.com/2014/06/24/news/economy/japan-
abenomics...](http://money.cnn.com/2014/06/24/news/economy/japan-abenomics-
tax/)

------
waterside81
I'm sure other Canadians on HN might agree - it feels a little weird to see
our darling Tim Horton's on the front page of US business sites (and HN of all
places!) and to see words like "double-double" and "timbits" used.

~~~
adestefan
It has been almost 200 years since you won the War of 1812. Maybe this the
first salvo in Tim's conquering the US market.

~~~
adventured
That has to be a joke, right? You mean since the British won the war of 1812.

~~~
adestefan
No one really won the War of 1812. Instead everyone just got sick of fighting
(the Americans got sick of spending money they didn't have and the British
needed to worry more about Napoleon) and said let's act like nothing happened.
A lot of people agree that because no one pushed for serious concessions in
land or reparations the Treaty of Ghent is one of the main factors that
allowed for the close relationship between the American, British, and
indirectly, the Canadians for the 200 years following the war. So the running
joke is that Canada won, even though Canada didn't even exists because the
British retained what then became Canada.

There was one true loser though and that was the Native Americans. Most allied
with the British and in the end they basically turned their back on the tribes
and let the American do whatever they wanted to the Natives as they pushed
west.

------
Raphmedia
This is strange to me. I see a lot of burger kings closing up while tims are
going strong.

------
uladzislau
Discussion of the merger talks from yesterday
[https://news.ycombinator.com/item?id=8222432](https://news.ycombinator.com/item?id=8222432)

------
Scoundreller
"But Burger King already managed to get its tax rate down to 27.5 per cent
last year, company filings show. Tim Hortons paid 26.8 per cent tax in Canada
last year, according the its annual report."

Of course, these are the mean interest rates. If it has the opportunity to
shift higher-than-average taxes into lower ones by geo-shifting, without
affecting its lower-than-average taxes, it's average rate will go down.

------
VLM
Missing some obvious LOTR here, "return of the King" and "One does not simply
walk into Canada". You even have the competition, Ronald McDonald, as a stand
in for sauron.

I've been looking at it like a near startup style pivot. Can't out mcdonalds
the mcdonalds company? Well then pivot and try selling unburned coffee and
donuts. It could work.

------
jstalin
Just for some context, Burger King had $233 million of net income in 2013 and
paid $88 million in income taxes.

[http://investor.bk.com/download_arquivos.asp?id_arquivo=C0B7...](http://investor.bk.com/download_arquivos.asp?id_arquivo=C0B7F543-DEA6-4852-ACB8-F589DFD66CC7)

~~~
Phlarp
Perhaps I'm ignorant, but this seems like and insane corporate tax burden
compared to what many (most?) large organizations are reported to be paying.
Can anyone explain if my assumption is wrong or why they pay so much?

~~~
adventured
It's not an insane tax burden in the US, it's common. Most corporations get
socked with a high rate; most can't dodge taxes as effectively as _some_
multi-nationals.

Exxon paid $86 billion in corporate income taxes the last three fiscal years.
They generated $118 billion in net income by comparison. Talk about a tax
hammer. Chevron is roughly the same.

Facebook had a $1.25 billion income tax last year, and generated $1.49 billion
in net income.

It's popular in the media to pretend corporations evade taxes universally. The
fact is, very few are able to. If you remove about 50 huge corporations from
the pool that avoid taxes very skillfully and have large incomes, the average
corporate income tax rate in the US is typically closer to 27% to 30%, versus
the more often quoted 22% to 25%.

------
martingordon
Glad to see that the Burger King business unit will stay in Miami:
[http://www.miamiherald.com/2014/08/25/4308025/burger-king-
in...](http://www.miamiherald.com/2014/08/25/4308025/burger-king-in-talks-to-
buy-tim.html)

------
cryptoz
Daniel Schwartz, CEO of Burger King, is known for being unusual in his
industry: [http://money.cnn.com/2014/08/25/investing/burger-king-ceo-
ag...](http://money.cnn.com/2014/08/25/investing/burger-king-ceo-age-33/)

------
luckyno13
All I want to know is whether I can get Timbits in the South Eastern U.S. as a
result of this :)

------
johnward
I don't get Tim Hortons. Maybe because I'm an American but I feel like other
Americans don't really get Tim Hortons as much as Canada does.

~~~
guiomie
I attribute Tim Hortons success in part because of patriotism. People go there
because it is Canadian and also because it is cheap. If you drink your coffee
"double double", it's fine coffee. As for the food it isn't expensive and has
the impression of being fresh. They actually don't bake the donut in store
anymore, but un-freeze them.

Personally, I'm more of a Starbucks fan since I drink my drip black.

My hope is that they close some Timmies down to open some Burger Kings. Burger
Kings has the best poutine in my opinion. Burger Kings are rare these days in
Canada.

~~~
slantyyz
>> If you drink your coffee "double double", it's fine coffee

If you drink your coffee that way, it's fine coffee flavored sugar. If you
drink Tim's coffee as regular, it tastes like water.

>> My hope is that they close some Timmies down to open some Burger Kings.

In the 416/905, we have a lot of Tim Horton's + Wendy's locations left over
from when they were owned by Wendy's. I wonder if the Wendy's half of those
locations will be converted to BK.

~~~
guiomie
That would be a great move. Wendy's is really most trashy fast food chain out
there. The one in my city still has carpet in it...

~~~
johnward
Really? In my area wendy's is probably the best between mcdonalds and BK. BK
is disgusting and haven't eaten there in years. I will do mcdonald's or
wendy's if I'm not on a diet and in an absolute hurry and need some food.

------
howeyc
As a Canadian working in the US, I have a pipe dream. All Burger Kings turn in
to Tim Horton's. Would be awesome.

~~~
laxatives
Probably a little irrational, but I think of Tim Horton's as significantly
more palatable than Burger King. Might be because I'm from the US and only
have good memories of getting 30 cent donuts when I was visiting.

------
todd8
Once upon a time, I was an engineer with only the most superficial
understanding of taxes and the economy. Today, I'm still only an engineer (at
heart), but in the many many years of working and investing I've learned a few
things. (I have only had one formal course in economics. At least it was
taught by Robert Solow.) Those that already understand the corporate tax even
a little should probably skip this post (and to those that really understand
it feel free to correct me where I don't understand it well enough). Taxes and
their effects are considerably more complex in real life than my examples
below.

When a partnership makes money, the profits flow through to the partners and
are taxed as ordinary income, so to compare:

    
    
        XYZ Parners (having 10 equal parners) makes $10,000,000
        Tom (a parner) has:
          Additional ordinary income: $1,000,000 
          Taxes:
            Federal (%39.6)            -$396,000
    	State (CA %12.3)           -$123,000
        ----------------------------------------
          Net:                          $481,000
    
    
        ABC Corp (with say 10 owners) makes $10,000,000 in profit
         Corporate profits         $10,000,000
         Taxes:
           Federal (%35)           -$3,500,000
           State (CA %8.84)        -$  884,000
        ----------------------------------------
          Net:                      $ 5,616,000
        

Note that this $5,616,000 can be retained by the corporation, but nobody
actually benefits from it until it is distributed to the owners, distributed
to it ten owners as dividends:

    
    
        Tina (an owner) receives $561,600 dividend payment
          Additional investment income of   $561,600
          Taxes:
            Federal (%23.8)                 -$133,661
    	State (CA %8.84)                -$ 49,645
        ----------------------------------------------------
          Net:                               $378,294
    

There are a few things to notice here, before an owner gets any money out of a
C corp, there are four taxes leveied and over %60 of the company's profits are
taxed away. This puts corporations at a disadvantage, tax-wise, to parnerships
under my very simplified example. They are also at a disadvantage to foriegn
corporations that don't have high corporate tax rates.

There are direct ways for the corporation to control its profits. It can
increase wages to employees. In this case say there are 100 employees, each
compensated the same and all profits are paid out to employees:

    
    
        Tim (an employee) receives a bonus of $100,000 (1/100 * 10 Million)
          Additional ordinary income         $100,000
          Taxes:
           Federal (%35)                     -$35,000
           State (CA %8.84)                  -$ 8,840
        ---------------------------------------------
          Net:                                $56,160
    

These taxes are paid by each of the 100 employees receiving bonuses.

Another way that a corporation can lower its profits is by lowering the price
of good sold, which benefits consumers.

Owners of the corporation like Tina above want to make something from the
ownership of the company and through the board of directors (voted in by Tina
and the others) they expect the company to eventually issue dividends (even if
it is too far in the future to benifit Tina the building retained earnings
will drive up the value of Tina's shares because of the _anticipation_ of
future dividends). This keeps corporations aiming for profits; their owners
insist on it. Eventually Tina will have to pay taxes on the capital gains from
the increased value of her shares or to pay taxes on dividend issued by the
corporation.

Note that parnerships don't pay corporate taxes, instead the owners pay income
taxes on the profits. Corporate taxes introduce another layer of taxes and
complicate the tax system. Why not have zero corporate tax? Firms structured
as parnerships don't pay corporate taxes and the income will still be taxed by
the time it gets to Tom or Tina. No indivdual gets away without paying taxes
on money he or she receives no matter what the corporate tax rate is. This is
why other countries can have lower corporate tax rate that the US.

Of what benefit are corporate taxes. Like VATs, corporate taxes affect the
entire population. The impacts are diffuse and a bit opaque so the voters
being affected by it are unaware of it, so it is a less painful way for
governments to raise more revenue from us. Corporate taxes raise the cost of
capital to corporations, which has a negative impact on the growth of the
overall economy. Further, it incentivises companies to actively lobby for
special breaks and perks. Politicians of all stripes like this system because
corporations are big donors that keep the croney capitalism going.

The real question is who bears the corporate tax and is this the most
efficient and fair way to collect taxes [1]. In my own opinion, I don't think
it is a good idea. Why not simply raise taxes on dividend income to ordinary
rates and eliminate the corporate tax entirely. This would eliminate the
competition for loopholes that distort the whole economy and hurt us all.

[1] Who Bears the Corporate Tax? A Review of What We Know,
[http://www.nber.org/chapters/c0065.pdf](http://www.nber.org/chapters/c0065.pdf)

------
hadoukenio
It's all to do with periodical cicadas populations.

------
iillmaticc
Two companies...one mediocre...one I don't believe large enough to pull the
deadweight of the other...trying to mitigate tax burden and safe
face.......Where I went to University there was a Burger King that was right
by my old apartment and it just so happened to sit on a huge piece of
property...and property there wasn't cheap (relatively speaking) and we prayed
for 5 years that'd they sell it and put in a Panera Bread.

