Rihanna’s favorite chicken chain seems to have found a way to dodge the taxman.
The Brazilian investment firm behind Burger King is looking to absorb Popeyes in a $1.8 billion acquisition. The deal would bring a windfall for Popeyes shareholders — and drill another hole in America’s leaky tax bucket.
If the deal goes through, Popeyes would become part of a conglomerate whose tax headquarters is in Canada. Burger King shifted its revenue across the border back in late 2014. It bought Canadian donut shop Tim Horton’s that winter to set up an accountant’s sleight-of-hand trick called an “inversion.”
The core logic of an inversion merger is absurd. Companies need not relocate any substantial business activity, staff, or corporate infrastructure to avail themselves of the tax savings such deals afford. They simply need to route revenue through affiliated companies that are incorporated in lower-tax countries. As with other creative balance-sheet maneuvers that rich American firms use to hide trillions of dollars off-shore, inversions are carefully designed to heed the letter of international tax law while defying its spirit.
The Horton’s deal was projected to save Burger King nearly $400 million in U.S. taxes, according to an Americans for Tax Fairness analysis which the company disputed. The company’s shareholders were set to duck another $800 million in capital gains taxes under the terms of the deal, according to the group.
Popeyes is a much smaller firm than Burger King, with roughly one quarter the total revenue. Its tax savings from the Canadian tax-accounting fiction are likely commensurately smaller, though ATF has not published an equivalent analysis of this new deal.
Inversions were all the rage in corporate management in the second term of the Obama administration, which sought to curb them through new Treasury Department rules. The bankers who helped complete those deals raked in close to a billion dollars in fees for their assistance.
Republicans in Congress are widely expected to gut the Obama-era restrictions on inversions. President Donald Trump’s administration has signaled it would prefer to slash the U.S. corporate tax rate rather than combat corporate tax avoidance through regulation — even though rates are not what drive American-made companies to pretend they live somewhere else.