Consulting® FEBRUARY 2016 9
Tomek Jankowski is a Senior
Analyst, Lead for Financial
I love a good burger, and happen to know
a couple good places in Toronto that can
really deliver the goods. Having said
that, Burger King isn’t on my list. Not
that Burger King doesn’t make a good
burger…as fast food restaurants go.
But Burger King is in Toronto. Well,
they’re just about everywhere, aren’t they?
But they’re headquartered in Toronto,
in the Toronto suburb Oakville, at least
legally. In truth, almost all Burger King’s
executives are still based in the state where
the company started, in Florida.
However, as everyone knows because it
made news headlines, Burger King merged
with Toronto-based Tim Hortons (the
doughnut chain) in 2014 so as to be able
to legally claim Canada as the combined
company’s headquarters—and thereby pay
(lower) Canadian corporate taxes.
Outraged American politicians howled,
and the concept of tax inversion entered the
public vocabulary as yet another example
of corporate greed. Since then many stories
have surfaced of American companies
acquiring smaller foreign companies to
be able to claim their acquisition targets’
home country as the new corporate
domicile—and pay local taxes instead of
US taxes. Ireland, Luxembourg and the
Caymans have carefully crafted their tax
laws to attract just such entities.
Now, pulling off a tax inversion is a
complicated and tricky business. In the
business world, that means consultants.
Tax advisory is a big growth area for risk,
assurance and auditing firms. In the case
of a tax inversion, it isn’t just the usual due
diligence footwork and messy post-merger
integration associated with mergers, but
the fundamental tax strategy foundation
that must be laid out first, with all the new
operational tax, regulatory and business
impact implications studied and addressed.
Many US politicians have condemned tax
inversion as an offshoring of American jobs
and American investments to foreigners—
but they’re wrong. The (functional) headquarters and any associated investments
usually stay put here in the US; it’s just the
legal domicile that goes abroad.
My problem with tax inversion is that
it is a misapplication of tax advisory
services. Consultants are supposed to help
their corporate clients be more efficient
and develop strategies (tax and otherwise)
that support the company’s growth goals.
Now don’t get me wrong: the tax advisors
and other consultants involved with tax
inversion strategies are just doing their
jobs. The problem is that these consultants
are being paid to fix a symptom of a larger
issue, rather than a real business problem.
At the heart of the issue making tax
inversions attractive is the US tax code,
which not only hits US-domiciled companies
with the highest tax rate in the world but
as well, is comprehensive—it taxes their
overseas profits as well as domestic. FATCA
is exhibit A in how far the US government
is willing to go to chase those tax dollars.
Politicians from both major US parties have
targeted the practice with new regulations,
but for many U.S. companies it is still a
profitable (and legal) option. Investments
are not lost, but tax revenues to the Federal
The consultants are just helping their
clients deal with a bad situation, one
brought about by the current tax and
regulatory environment in the US. Indeed,
bad situations are good for consultants. So
far politicians—including some currently
running for president—have tried to stop
tax inversion by fiat but they are avoiding
the real problem. Fix the tax code, and
tax inversion will likely go away. Not
that there’s anything wrong with a good