Be cautious on big mergers

Burger King and Tim Hortons are merging, making a giant fast-food conglomerate poised to take over the world. And media on both sides of the 49th parallel have been making much of the fact that the HQ for this new mega-corporation will be based in Canada, not the United States.

The reason seems to be one of tax savings.

Money from international operations that returns to head office will now be taxed at the Canadian rate, rather than the American one. And the Canadian rate has been lower for some years.

In fact, many western countries have a lower corporate tax rate than the U.S. Britain is lower, Italy is lower, even France’s highest corporate tax rate is 33 per cent, below the maximum 39 per cent U.S. rate. Several countries in Europe are actually planning to reduce their rates further in the future.

But those other countries don’t share a border and a long-standing trade pact with the U.S. So if you had to relocate your corporate headquarters, would you choose Canada, or…?

In the short run, this means (mostly) good things for Canada. Bringing corporate headquarters here means more money for our treasury and, at least theoretically, more jobs for Canadians.

The threat is that this can easily become a race to the bottom.

Our world is structured so that moving corporations, and goods, and jobs, is relatively easy. But for people, flitting around the world is not so simple.

Canada’s advantages today could be undermined tomorrow, and then it could be France or Japan or South Korea to which corporations flock, leaving us with less tax revenue and abandoning workers who can’t simply uproot and move to another continent.

This has happened before, many times. It’s the same reason car companies started building factories in the American South in the 1970s and 1980s, and it’s the same reason that well over half of everything you can buy today was made in China, Indonesia or Bangladesh.

We could see a day, in the near future, when we are faced with a choice of cutting taxes again and again, or watching corporations and jobs vanish over the horizon. It won’t be a pleasant choice for Canada, whichever way we jump.