THE BLOG
10/01/2014 02:33 pm ET Updated Dec 01, 2014

Burger King: Being Your Way Is Not OK

ASSOCIATED PRESS

In a move apparently to be more progressive and inclusive, Burger King recently changed its motto from "have it your way" to "be your way." It's good the company is trying to be more inclusive, but the company's recent decision to merge with Tim Hortons and move its headquarters to Canada, which reportedly could score tax reductions for the company, is the opposite of progressive -- it's downright regressive.

By merging with Tim Hortons and reincorporating as a new company in our neighbor to the north, Burger King is deserting its American consumer base, leaving average citizens to pick up the tab for the lost taxes from a profitable U.S. business. A business that will continue to operate in our country, have management and workers here, despite becoming on paper a foreign entity.

The whopper of a tax move is called an "inversion" and it is a way for a company to transfer headquarters on paper to another county with lower tax rates or other policies that reduce the amount of U.S. taxes a corporation pays. Dozens of corporations have done it in recent years, and more have deals currently in the works. Each new company announcing its intent to defect to a foreign tax jurisdiction fans the flames of consumer displeasure.

Recently, America's largest drugstore chain, Walgreens, made a tactical retreat and dropped plans to reincorporate after merging with a Swiss company in order to invert. After shoppers and activists united in calling on the company to stay true to its U.S. roots and pay its fair share of corporate taxes, Walgreens decided to keep its headquarters (and tax contributions) here in America.

Given all the rightful criticism of American people and press to the problem of inverted companies, it was welcome news when the U.S. Treasury Department announced last week that it is taking some small but positive steps that went part of the way toward addressing inversions. Treasury did that by limiting economic incentives of these inversion deals. The changes to the interpretation of the tax code took away some of the benefits of inversions like ending some types of subsidiary loans, restructuring deals, and cash and property transfers.

Currently, under the tax code, when companies merge and reincorporate in another country but retain 80 percent of their previous shareholders, they are classified as "inverted" under the tax code. That means the inverted company is treated as domestic for tax purposes and is not able to escape paying its fair share of taxes. The new changes from Treasury tighten up the "80 percent rule" by ensuring that companies aren't able to artificially shrink via dividend payouts or grow by counting passive assets like cash in order to squeak in below the 80 percent previous shareholders threshold.

Legislation is still needed, though. The Stop Corporate Inversions Act, proposed by U.S. Sen. Carl Levin (D-Mich.) and U.S. Rep. Sander Levin (D-Mich.), would lower the definitional threshold for when a company is treated as domestic for tax purposes from the current 80 percent down to 50 percent of the new company's stock being held by previous domestic shareholders.

Until inverted companies that have a majority of the same shareholders are taxed the same as their U.S. parent company, an incentive will exist to game the system. That's why you should tell your U.S. representative and senators to support the Stop Corporate Inversions Act.

It's clear that congressional action is needed. Despite the new rules from Treasury, Burger King and Tim Hortons still plan to go through with their inversion deal.

So, Burger King, if being "your way" means reincorporating in Canada in an inversion move that could in many people's opinion only be described as shirking your tax duty, it's not OK in my book, as we need all American companies to pay their fair share.

This was crossposted to Public Citizen's CitizenVox.org blog.