There has been considerable publicity in recent years about U.S. firms re-domilciling in the Cayman Islands and Bermuda to escape America’s punitive corporate tax regime. The combination of a high tax rate and the self-destructive practice of worldwide taxation (imposing American tax on U.S. companies competing abroad, even though foreign governments already get to tax the income) has made America the least attractive place in the world to operate a multinational according to a former Chairman of the President’s Council of Economic Advisers. Re-chartering abroad does not enable a company to escape taxes to the IRS on its U.S.-source income, but it does enable it to effectively compete in other nations without being saddled by the internal revenue code. Now the situation has become so bad in America that some companies are escaping to – I kid you not - Canada. Bloomberg reports:
Tim Hortons Inc, the largest fast- food chain in Canada, filed to reorganize as a Canadian company to lower its tax rate. Tim Hortons, which presently operates out of Oakville, Ontario, will become a unit of a Canadian-based parent with the same name, the company said today in a statement. Its current parent is based in Delaware. The coffee and doughnut seller began looking at moving its registration in the fourth quarter of 2008 as a way to cut its tax rate.
This may be the beginning of a trend. Reuters reports that Canadian lawamkers are advertising the fact that they have a more market-friendly system, and they hope to lure more firms north of the border:
Other companies are likely to follow Tim Hortons Inc in moving their corporate structures to Canada to take advantage of a falling corporate tax rate, Finance Minister Jim Flaherty said on Friday. The coffee shop chain said last month it applied with U.S. regulators to return to its Canadian corporate roots through a reorganization to benefit from lower taxes. Flaherty told reporters on a conference call from Chile, that he hoped the provinces would follow in the footsteps of the Conservative federal government and commit to reducing their tax rates to 10 percent by 2012. The federal government has pledged to reduce its corporate tax rate to 15 percent by that year, for a combined rate of 25 percent. “I’m optimistic that we’re going to get to that 25 percent (corporate) tax rate, federal and provincial, by 2013 or so,” he said. “That gives us an opportunity to brand Canada at a corporate tax rate of 25 percent globally. So that’s the goal.”