Tax Inversions: Maximizing Wealth by Going Abroad

Author
Julio Rivas-Aguilar, Andrew Borchers
Region
North America
Topic
Accounting & Finance
Strategy & General Management
Length
3 pages
Keywords
tax inversion
mergers
corporate social responsibility
CSR
social media
Copyright Holder
Journal of Critical Incidents
Student Price
$4.00
Target Audience
Undergraduate Students
Executive Education

This critical incident describes the merger and controversial tax inversion of U.S.-based Burger King and Canada-based Tim Hortons. Inversion is a strategy that seeks to maximize stockholder wealth by acquiring foreign subsidiaries in tax-friendly countries and subsequently shifting tax residencies. Burger King proposed to relocate its tax address to Canada, thereby paying a lower tax rate and increasing its stockholder’s wealth. However, this move led to significant resistance, given Horton’s iconic brand image in Canada and outrage from U.S. customers of Burger King. The consequence of the merger led to boycotts and strong negative reactions from consumers on social media. The reader is faced with the decision of whether to relocate Burger King’s tax residence.

Learning Outcomes
  1. Evaluate the tax and reputational implications of a corporate inversion
  2. Recommend a course of action for a consumer products firm that is undergoing a merger with the potential for tax inversion
  3. Evaluate the long- and short-term impacts of tax inversions on firm value

Submitted by Gordon-Amber on Apr 29, 2024

Rating
4
Average: 4 (1 vote)

When Burger King expanded abroad, in society's eyes it lowered their crediability and responsibility toward their costumers. Burger King made a financial decision to take a tax advantage, without knowing the degree of public backlash they would receive in return. 

Submitted by Riggs-Justyce on Apr 29, 2024

Rating
4
Average: 4 (1 vote)

Why does it matter to others on how a company spends and saves their money? I believe it was a good idea but - with all of the backlash from the society, it made it hard for Burger King to do the merger smoothly. 

Submitted by Hunter-Taylor on Apr 29, 2024

Rating
5
Average: 5 (1 vote)

I thought that it was a very smart move of Burger King. No, it is not fair to other businesses, but they should have thought of it.

Submitted by zilton-kennedi on Apr 29, 2024

Rating
5
Average: 5 (1 vote)

The case presents the problem of tax evasion and was very informative as to how companies operate their businesses. The writer did a very good job of presenting the information in a none biased tone

Submitted by Bruce-Jakobi on Apr 29, 2024

Rating
4
Average: 4 (1 vote)

This case is on a topic where you have to make your decision on participating in tax inversion or not based on your long-term projections. As a business owner, if you project that the tax advantages you receive by going abroad will outweigh the public backlash that you may receive, it is probably smarter to go abroad. Just like with any other decision, you have to figure out whether if the pros outweigh the cons, and that may vary for different corporations.

Submitted by Pao-Yi-Chen on Apr 29, 2024

Rating
4
Average: 4 (1 vote)

This case gave me a different perspective on how to see taxes and what they represent for a country and the people in it. It is a well-written case that makes you think in long term.