What Would Pope Francis Say About “Tax Inversion”?
“Tax Inversion” is the practice whereby a smaller company from a country outside the United States, with a lower corporate tax rate will “acquired” a much larger US company, for the purposes of establishing a new tax domicile for the US company and pay less corporate taxes.
The most recent case is where US fast- food company, Burger King Worldwide restaurant agreed to be acquired by smaller, Canadian firm Tim Hortons. (1)
“…although it is difficult to be definitive, the practice first became prevalent in the 1990s, with US corporations seeking to relocate to tax havens such as Bermuda;…[t]he issue was first subjected to a great deal of publicity in April 2014 by the proposed merger between Pfizer and AstraZeneca”. (2)
In the case of Burger King & Tim Hortons, Canada’s federal tax rate is 15%. Combine that with Ontario’s corporate tax rate of 11.5%, results in a combined tax rate of 26.5%. The United States has a corporate tax rate of 35%, versus the 26.5% mentioned above.
There are strategic synergies to the merger besides tax savings. The merger helps Burger King expand in Canada and participate in Hortons coffee & donut breakfast menu, which McDonalds, Dunkin Donuts and Starbucks clearly dominate over Burger King in the USA.
The Catechism of the Catholic Church (CCC) has some insight into merger & acquisitions and “inversions” in general. See CCC references of #’s 1887, 1892 and 1912.
CCC# 1887 “The inversion of means and ends,10 which results in giving the value of ultimate end to what is only a means for attaining it, or in viewing persons as mere means to that end, engenders unjust structures which “make Christian conduct in keeping with the commandments of the divine Law-giver difficult and almost impossible”.
CCC# 1892 “The human person is, and ought to be, the principle, the subject, and the object of every social organization”.
CCC# 1912 “The common good is always oriented towards the progress of persons: ‘The order of things must be subordinate to the order of persons, and not the other way around. This order is founded on truth, built up in justice, and animated by love.’”
The “means and ends” of society and its economic policies must focus on spiritual and not just the material nature of man. Policies should and directly support and nurture his vocation as a child of God. The “order of things” must be subordinate to the order of persons; that is persons before profits. Increasing shareholder value must not be the only criteria.
Burger King Worldwide and Tim Hortons have a fiduciary obligation to increase shareholder value and not pay any more in taxes than is necessary. Even Pope Francis would be a supporter of avoiding “wasteful spending”. A corporation is a legal person by definition; however, corporations do not have an eternal soul and is not a moral being. Its actions are directed by moral beings.
All companies have an obligation to the betterment of society, but especially those listed on a national exchanges which have a higher moral obligation to support the dignity of man by permitting him to use his gifts in gainful work and elevating the common good.
If a corporation pays less in taxes, then theoretically it has more money to distribute to shareholders in the form of dividends and enhanced earnings, which elevate share prices, which in turn permits moral shareholders the ability to direct those profits to charitable organizations. Tax inversion allows corporations to save money and theoretically can use those savings to expand operations and hire more employees.
In an increasingly “flat world”, fiscal accountability by local, state and federal governments need to consider the economic policies of its competitors and take steps to reduce tax rates, increase employment and the standard of living of its citizens.
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