A meal at a Burger King restaurant in Virginia
A meal at a Burger King restaurant in Virginia Reuters

Burger King’s planned merger with Canadian coffee chain Tim Horton’s will save the company and its leading shareholders hundreds of millions of dollars in U.S. taxes, despite the company's repeated assertions that the deal is not motivated by tax savings, a report released Thursday by Americans for Tax Fairness (ATF) finds.

The merger, which Tim Horton’s shareholders discussed this week, is expected to close Friday. The deal would save Burger King an estimated $400 million to $1.2 billion in U.S. taxes between 2015 and 2018, ATF says.

“Burger King says it’s not really about taxes,” said Frank Clemente, executive director of Americans for Tax Fairness, in a statement. “But… it’s not credible to say that a potential tax break of $1 billion didn’t influence its decision to become a Canadian company.”

Under the deal, Miami-based Burger King would move its headquarters to Canada while maintaining operations in the U.S. Both Burger King and Tim Horton's would become subsidiaries, headquartered in Canada, of a new entity named New Red Canada Partnership. So-called inversions like this have become more common in recent years, especially in the pharmaceutical and medical device industries. Companies that invert leave behind the 40 percent corporate tax rate in the U.S., the highest of any major developed economy, to instead pay taxes to the government of their new headquarters. Often, day-to-day operations do not change much or at all, and U.S. executives still control the newly foreign company.

In September, the Obama administration prohibited a primary motivation of inversions, in which American companies that had become foreign corporations would borrow money from foreign subsidiaries, skipping the U.S. unit, then use the cash to repurchase shares of the U.S. units to provide them with a non-taxable income stream.

Burger King could dodge $117 million in U.S. taxes on profits it held offshore at the end of last year, ATF says. Under U.S. law, the company has been able to defer paying taxes on those profits. By becoming a Canadian company, it may never pay those taxes.

The fast-food chain could also avoid paying $275 million in U.S. taxes between 2015 and 2018 because under Canadian law, it wouldn’t have to pay U.S. taxes on future profits made overseas, even on a deferred basis, ATF says.

Burger King’s largest shareholders would be the biggest winners -- saving as much as $820 million in U.S. capital gains taxes from the inversion, according to ATF.

The company's CEO, Alexandre Behring, has downplayed the importance of tax savings when discussing the deal, telling the Wall Street Journal in August, "This is not a tax-driven deal." But the company listed "anticipated tax benefits" as one of its reasons to merge with Tim Horton's in its Nov. 5 required filing with the Securities and Exchange Commission (SEC).

ATF's report also found that Burger King is the No. 1 burger chain for American military bases and will receive $150 million in royalties and marketing support from its military restaurants.

“Burger King’s decision to renounce its U.S. citizenship and become a Canadian company will mean that while U.S. military families support Burger King by buying its food, Burger King will no longer support service members by paying its fair share of taxes,” Clemente said.