The donut speech, fact checked (III)

by Aaron Wherry

Back, once more, to the matter of the Prime Minister, Tim Hortons and the donut speech. Here is how an item posted on the Conservative party’s website described the news.

As a direct result of Conservative action to cut corporate taxes, Tim Hortons — perhaps Canada’s best known coffee shop — is announcing that they will be moving their head office to Canada. Tim Hortons’ choice to make Canada their new  base of operations will not only create new jobs and generate economic activity, but it also sends a clear message to other companies around the globe: Canada is a great place to do business.

As noted previously, economist Erin Weir has posed two questions about the move. First, will it mean any additional tax revenue for the country? Second, will it mean any additional jobs in this country?

So I asked. And here, via email, are the answers from Tim Hortons’ head office.

1. Will the shift in ownership result in any additional taxes being paid to the Canadian government?

Yes, initially, Tim Hortons will pay more taxes to the Canadian government. Over the next few years, as the effective corporate tax rate decreases, the amount of taxes we pay will then decrease. But over the long term, as we hope the company and our income continue to grow, we expect to pay more taxes here in Canada.

2. Will the shift in ownership result in any additional jobs in Canada?

Operationally, the reorganization will not result in any immediate new jobs. However, the reorganization made Canada a more attractive location than before when considering future manufacturing growth or acquisitions, making long-term additional jobs a greater possibility.




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The donut speech, fact checked (III)

  1. You forgot to ask about "jobs of the future" which would have allowed Tim Horton's to expand on the exciting innovations they have planned.

  2. Only in Canada could we find people who get uptight that our political leader is making truthful statement in order to promote business development. The shame of it.

    • Except there is no truth to the statements.

      Harper claimed

      (1) as a direct result of the Conservatives, Tims made this move – this has not been established in any way
      (2) this would create jobs – this is clearly denied by Tims
      (2) this would create economic activity – if economic activity means "tax revenue", this is also clearly denied by Tims, at least after the first few years

    • Yes, the shame of being sceptical when it comes to what our glorious leaders say.

      • He was promoting business development. If you were forever shouting about ridiculous things, your message might resonate better when there is something to complain about.

        • You keep saying "business development," yet all we have are claims that may only be true in the future. It's not that persuasive.

          Besides, it's Tim Horton's for God's sakes. McJobs and structurally-engineered food.

          • Thinking like that is a big problem. I would bet that less than half their employees are front line servers. They have warehouses, trucks, product development, food services and plenty of other operations that are not McJobs.

          • Thinking like that is a big problem. I would bet that less than half their employees are front line servers. They have warehouses, trucks, product development, food services and plenty of other operations that are not McJobs related. And those people who are working the McJobs, choose to work there. You would rather they not have that option?

          • On this I agree with you. Tims is a job creator and its operations and head quarters are here, like they have always been, and that is a good thing.

            Not so good are all of the companies – more examples of this by far than the Tims example – that are have left Canada under Harper.

          • Your last point is the only really relevant one. Try and watch the ball folks. 'Tims are back', meanwhile who just left or got sold off…god how easily we get distracted.

          • Again, I would like to get some understanding as to what the federal government did to send these companies fleeing?

          • Billions of tax dollars have been lost because many income trusts have been bought out and/or moved to the US or outside of Canada as a result of Harper's tax increases, to say nothing of the $35 billion lost to investors because of his broken promise.

          • As I said below, the only people whining about Income Trusts are rich people who were taking advantage of a tax loophole. Boo Hoo. So yes, I guess Harper has caused the decline of some companies whose only purpose was to take advantage of tax loopholes.

            I suspect that will not resonate much with the general public.

          • I don't have the expertise to say yea or nay to the income trust issue, but on the question of only rich folks being upset you couldn't be more wrong.

          • Well, the typical profile of a dividend investment portfolio holder is someone with tons of cash that wants to generate some regular income off of it. Unless you have a ton of cash, the income generated isn't much. But I suppose there are other people upset, like opposing partisans, and those who feel they should be entitled to tax loopholes.

          • Well, the typical profile of a dividend investment portfolio holder is someone with tons of cash that wants to generate some regular income off of it. Unless you have a ton of cash, the income generated isn't much. But I suppose there are other people upset as well, like opposing partisans, and those who feel they should be entitled to tax loopholes.

          • You would rather they not have that option?

            They won't eventually. The innovations to come will most certainly mean the elimination of these jobs in favour of greater technological sophistication.

  3. You forgot to ask an important third question:

    3. Did Tim Hortons move the head office of its holding company to Canada "as a direct result of Conservative action to cut corporate taxes" as claimed by the Conservative Party?

  4. So the shorter answer is: there will be less taxes paid to Canada and no new jobs.

    Thanks Steve! for taking credit for this.

  5. Funny how I read the exact opposite from the same statement:

    "we expect to pay more taxes here in Canada."

    "making long-term additional jobs a greater possibility"

    • "The amount of taxes we pay [in Canada] will then decrease." In fact, isn't this what Harper wanted. The problem is, we are only talking about tax revenues at the very top out of the holding company. The operating company will remain the same since it is the revenue generator and has always been in Canada and never left so didn't need to come back.

      "Operationally, the reorganization will not result in any immediate new jobs".

      • Well, I think Timmies was referring to future anticipated drops in corporation income tax rates to account for the decreasing taxes over time. Trying to hint to the gov't to go in that direction, probably. These lower taxes rate, however, when applied to Timmies future anticipated increased sales – like any good company hopes for – will result in increasing tax revenues overall for the gov't.

    • Keywords: expect, possibility. It is intentionally water downed language.

      "We also anticipate that our donuts will usher in the return of Christ our Savior to Earth in the near-to-long-term future"

    • Don't let the actual story get in the way of a more interesting one.

    • I suspect Mr. Weir is trying to be very diplomatic and avoid calling Harper a big fat liar for taking credit for Tims successes.

      • Do I think it's ridiculous that Harper & Co are acting like they saved Tim Hortons – of course – I'm with you on this.

        But the more fundamental question is – will lower corporate taxes create mor jobs in this country? Absolutely. Will it benefit customers? Yes. Will it increase or decrease tax revenue in aggregate? Don't know. Depends how many jobs are created.

        • I missed that part where they acted like they saved Tim Hortons. When was that?

          • Rhetorical exaggeration on my part for sure. Apologies.

          • I agree fully with you on the big question: Will it increase or decrease tax revenue in aggregate?

            And your conclusions.

        • But the more fundamental question is – will lower corporate taxes create mor jobs in this country? Absolutely. Will it benefit customers? Yes."

          Again, I ask how?

          Tims head office and operations were in Canada before Harper, they never left and so they never had to come back. This reorganization does not affect operations in any way. The parent shell company which does not have any employees is a paper company. It was a Delaware paper company and now it is a Canadian paper company.

          When it receives profits from its Canadian and non-Canadian sources, this profit will now be taxed by the Canadian government instead of the American government. The generation of those profits is not affected in any way by where the holding company is located or how much tax the holding company pays on dividends from its subsidiaries.

  6. This is a more reasonable expectation of the results of this policy. I feel the government was misleading the public by saying that THI was moving operations to Canada. THI has always been operated out of Oakville. Their Delaware HQ was just a flag of convenience.

    • But isn't that the kind of the point Andrew NPOC? A "flag of convenience" means that they are only there for the tax incentives, and are thus avoiding paying taxes to the "flag of inconvenience", for lack of a better term. If they have disavowed themselves of the flag of convenience, isn't that because the home country's tax policy became more attractive, allowing them to ditch the flag of convenience?

      • Its seems to be lost on the critics, that message. Also lost is that business leaders pay attention.

      • Ah.. well then.. since obviously the name of the game is to get the most flags of convenience, what we need to do is start charging the citizens and paying the corporations to come here, right? Have the government promise to buy all their products and they'll all move here and we'll win! Whoopee!

        hint: Where the flag is means squat.

        • No, where the flag is means where their consolidated corporate earnings get taxed. Its not squat.

          • "where their consolidated corporate earnings get taxed"

            Um, no.

            Tims US operations will generate revenue in the US which will be taxed in the US.

            Tims Canadian operations will generate revenue in the Canada which will be taxed in the Canada.

            The only difference now is that those operating subsidiaries will pay dividends out of their profits to a Canadian shell corporation instead of a Delaware shell corporation. The Canadian shell corporation will pay taxes on the dividends to the Canadian government instead of the Delaware shell corporation will pay taxes on the dividends to the US government. Initially, but only initially, the taxes on these dividends will be slightly less.

            We don't know if it is squat or meaningful or large, but I think we can assume it was at least meaningful because they actually made the change (let's stop calling it a "move" ok?), but highly doubtful that it was large.

          • Um, no. You have merely flipped the word shell for consolidated. It is a question of where the entire operation gets taxed. That is now Canada, whereas it had been the US.

          • This is basic corporate and tax law, my friend. I'm not trying to go after you, but stating some basic concepts and, well, laws. Which is what I do for a living. You absolutely do not consolidate your entire operations for tax purposes.

            A corporation is a separate legal person in Canadian and US laws (in fact, very recently re-affirmed by the US Supreme Court). As such, a corporation is also considered a separate taxpayer under the Income Tax Act in Canada and the Internal Revenue Code in the US. it owns its own assets. It is owned by its shareholder, which itself may be a corporation (as is the case with Tims). But the shareholder does not own the property of its subsidiaries, the revenue of its subsidiaries is not the revenue of the shareholder, the employees are not the employees of the shareholder.

            Each entity in the corporate structure is treated as a wholly separate person at law. The times you mash this legal separation together and consolidate them are few and only relate to reporting not ownership: (1) for accounting purposes, (2) for certain regulatory reporting purposes (eg. securities law or bank regulation).

          • {cont}
            So the only change here is the jurisdiction of incorporation of the shareholder. The only thing the shareholder would own, for example, would be the shares of its US subsidiary and its Canadian subsidiary. The only revenue it would be taxed on would be the revenue it would receive from its US subsidiary and its Canadian subsidiary, not from operations but from dividends or possibly interest payments if it had lent money to its subsidiaries.

            In other words, if Tims Canadian operations makes a ton of profits this year but holds onto that money to build a bigger business or buy some other competitors or retrofit some equipment, its shareholder will not pay any tax on this profit at all and the change in jurisdiction makes no difference.

          • As I said, it is a question of where the entire operation gets taxed. The shell company is the entire operation, unless you are suggesting that the subsidiaries are holding out on the parent.

      • Allow me to clarify: I support the reductions in corporate income tax. It’s just about the only policy of this government I support. I believe it will result in more investment, and more jobs in Canada. In this particular instance, the government mislead the public by suggesting there was an operational change by THI. This is not the case. They will pay slightly more taxes in Canada, and no new jobs will be immediately created. In the long run, there may be new jobs that would not happened otherwise. THI returning the HQ functions to Canada is a good thing, but it’s hardly a major coup.

        It’s be like BMO moving its HQ from Montreal to Toronto. Mostly irrelevant to both Ontario and Quebec. Selling it as “BMO moves operations to Toronto” is misleading.

        • "THI returning the HQ functions to Canada is a good thing, but it's hardly a major coup."

          Except it wasn't even that, Andrew.

          Headquarters, and all its functions, are and always has been located in Oakville, Ontario. This parent holding company owns one thing: the shares of its subsidiaries. It exists only in a filing cabinet in some lawyers office. Before that may have been a Delaware lawyers office but might have been here in Toronto. Now this parent company most certainly exists in a Canadian lawyers filing cabinet. It has no employees. Has no desks. Has no lease. Has no reality except on paper.

          • If you read what I wrote, you’ll see that we are not disagreeing. See what I wrote about BMO HQ. I think you may be confusing ‘head office’ with ‘head quarters’. Even if THI headquarters was in a Delaware filing cabinet, that is where THI was quartered.

          • And that is what I am saying: the head office and the head quarters of the Tim Hortons business is one and the same thing and it is located in Oakville. The Delware holding company that is now a Canadian holding company was neither the head office or head quarters of Tims. It was just that: a holding company with no assets other than the shares of the operating companies.

          • It has no employees. Has no desks. Has no lease. Has no reality except on paper.

            That's nonsense. You are saying that the parent company does not own all the assets. No business has any reality except on paper.

          • "You are saying that the parent company does not own all the assets. "

            I am saying that the only thing it owns are the shares of its subsidiary corporations.

            Each subsidiary corporation owns its own assets, desks, land, coffee cups and has its own employees. The parent corporation is a holding company only.

            As a legal entity, the holding company is not for example the employer, would not have a CPP or EI account, would not pay salaries. Also, for tax purposes, you can't consolidate. Each separate corporation is a separate legal entity and separate taxpayer.

            It is for accounting purposes, which is important also for securities disclosures, that you consolidate all of this.

          • So, as a legal entity, the parent is not liable for losses of its subsidiaries? Saying that all it owns are the shares is the same thing as saying it owns the companies. If it owns the companies, it owns their assets – and liabilities.

  7. What!? Our PM is making the country more atractive to buisness?

    He must be evil! Buisness is bad and hurts the working people!

    Canada needs to get rid of all buisnesses!

    Lib-lefties are such a smart group.

    • Some of us remember what happened in Ontario after Mike harris declared the province open for business.

    • Kody! Is that you?

  8. 1) TH said they moved here because of the tax decrease
    2) They say here it will create jobs
    2 – b?) No, they say right here that they expect to be paying more taxes.

    • Where did he say they moved because of the tax increase? Could be but, as I point out below, this is the important question that was not even asked.

      Where do they say changing the paper location of the holding company will create jobs? He says the opposite in fact: that the reorganization will not create any jobs. He is explicit about this. In the second part of that statement he says that there may be jobs that result from growth. No kidding.

      On more taxes, all he has said is if the company grows and increases its revenues, they will pay more taxes. No kidding. But if the company grows and increases its revenues, will they be paying more taxes than before? No. Canadian operations have not moved therefore taxes from Canadian operations will not change. Taxes on profits to the holding company are the only thing that will be lower.

    • 1) Yes, and they also said they moved here for other reasons. It's a little disingenuous to say they moved here because of the tax decrease, as it implies they moved away because the taxes were too high. The move back was in the works for some time- basically since they spun off from Wendy's.
      2) No, they said the opposite. They hope that in the future, the lower taxes that improves their bottom line will help them expand faster and thus create jobs, but the same thing can be said for the introduction of a new doughnut.
      3) They expect to pay more taxes right now, but as the new rates come into effect, they will pay less.

  9. What everyone keeps merging are the operations and the holding company of Tims.

    The operating company and its head office, the part that creates jobs and economic activity, has always been in Canada, never left Canada, and so did not "come back" to Canada. It's future growth, it's future economic activity, it's future job generation, it's future taxable revenue are not related to this corporate move.

    There are some tax savings to Tims's shareholders from Tims's profits, particularly it's non-Canadian profits

    More money in the hands of shareholders is not a bad thing, but the operations of the company are what create that profit and those jobs and this corporate move doesn't affect the operations in any way.

    • By contrast, Nortel, Inco, Falconbridge, Stelco, Alcan, etc. have gone. They've left. There are some plant/mine/office operations here, but management and much of the operations, and all the jobs and "economic activity" that go with that are no longer in Canada. All under Harper's watch.

      So Harper has gained Canada, or at least some Canadian law clerk and some tax accountant, a few additional billable hours in the course of a year, but lost thousands of jobs to departing companies, not to mention the hundreds and hundreds of thousands of jobs that have been lost since Harper became PM.

      Well done Steve!

      • I see, Harper's cuts to taxes have created a poisoned business environment and all these mining companies are leaving. What exactly did Steve do to poison the environment? The government is to blame for Nortel's monumental collapse?

        • If he's going to take credit for Tims "coming back" under his watch, then he should take the flack for those leaving under his watch.

          • He was pointing to a change in legislation that caused the move. If there are changes in legislation that caused companies to leave, then I agree, he should take flack for that. Do you have examples of that?

          • A ton of Canadian income trusts are now owned and headquartered in the US because of Harper breaking his income tax promise. Rather than stemming the flow of any tax "leakage", this has resulted in a loss of tax revenue that is far far higher than any, if there is any, tax revenue from the Tims of the world changing the jurisdiction of his holding company.

  10. And again the MSM misses the boat and COMPLETELY FAILS to bring up the Key Lime donut.

    • Your obsessed, lol!

      It saddens me that I never got the opportunity to try them, they sound gooooood! Keep up the fight LKO, maybe you'll single handedly bring them back, with Roots in tow.

  11. What happened to that rumour/story that Tims decision to "move" was based more on some anticipated tax, or policy change, in the US that will be unfavourable to them. If that is the case, the "move"has little to do directly with anything the Harper govt has done. And everything to do with what the US will do.

  12. Good catch, Aaron. Too often the Conservatives get away with their lies and exaggerations. They even got away with exaggerating about the number of years the Liberals were in power, convincing the entire country that 12 years, 3 months and 2 days is 13 years.

  13. i.e. there is no such thing as consolidated corporate earnings under the Income Tax Act. That is an accounting concept. Canada Revenue taxes each corporate entity as a separate taxpayer.

  14. So, more Canadian tax for the next few years and no near-term new jobs from Tim Hortons 'routine corporate announcement'. That certainly explains why Harper had to tear himself away from Obama's address to the UN on climate change.

    • You suspect that Harper is not familiar with Obama's address? Or do you think it was important for Harper to be there as a sign of support?

      • Oops, that should have gone here…

        Familiar with yes, in agreement with maybe not so much. I'm not suggesting that Obama needs or wants Harper's 'support', but a sign of respect for the President he was so anxious to have his picture taken with might have been appropriate given the somewhat underwhelming event he chose to attend instead.

        Now how do I get rid of the other one?

        • I think you need a profile already setup to do any deletes. Don't worry there is a lot of commentary frag.

          Canada was represented at the speech, having the PM there wouldn't make any real difference.

  15. Another question:

    Why isn't the Harper government trumpeting their policy to gut Income Trusts? I understand that the market value of Canadian Income Trusts/Royalty Trusts decreased by 35 Billion dollars in the months that followed the Harper government announcement. It also lead to foreign takeovers in the oil/gas sector as market valuations declined.

    One example of this is Primewest Energy. No new taxes were generated by this foreign takeover, in fact it led to a tax lss as Canadian unitholders (who paid taxes) were replaced by a foreign entity who does not pay Canadian corporate tax.

    http://caiti-online-media.blogspot.com/2007/09/pr

    All this to say that for every trivial victory such as Tim Hortons there is a story that indicates what a disaster the Conservative policy towards Canadian shareholders and businesses has been.

  16. Another question:

    Why isn't the Harper government trumpeting their policy to gut Income Trusts? I understand that the market value of Canadian Income Trusts/Royalty Trusts decreased by 35 Billion dollars in the months that followed the Harper government announcement. It also lead to foreign takeovers in the oil/gas sector as market valuations declined.

    One example of this is Primewest Energy. No new taxes were generated by this foreign takeover, in fact it led to a tax loss as Canadian unitholders (who paid taxes) were replaced by a foreign entity who do not pay Canadian corporate tax.

    <a href="http://caiti-online-media.blogspot.com/2007/09/pr…” target=”_blank”>http://caiti-online-media.blogspot.com/2007/09/pr

    All this to say that for every trivial victory such as Tim Hortons there is a story that indicates what a disaster the Conservative policy towards Canadian shareholders and businesses has been.

  17. Dear CRA: Cut my income taxes and I swear I'll think about maybe makign some jobs in the future possibly

  18. Familiar with yes, in agreement with maybe not so much. I'm not suggesting that Obama needs or wants Harper's 'support', but a sign of respect for the President he was so anxious to have his picture taken with might have been appropriate given the somewhat underwhelming event he chose to attend instead.

  19. Another question:

    Why isn't the Harper government trumpeting their policy to gut Income Trusts? I understand that the market value of Canadian Income Trusts/Royalty Trusts decreased by 35 Billion dollars in the months that followed the Harper government announcement. It also lead to foreign takeovers in the oil/gas sector as market valuations declined.

    One example of this is Primewest Energy. No new taxes were generated by this foreign takeover, in fact it led to a tax loss as Canadian unitholders (who paid taxes) were replaced by a foreign entity who do not pay Canadian corporate tax.

    <a href="http://caiti-online-media.blogspot.com/2007/09/pr…” target=”_blank”>http://caiti-online-media.blogspot.com/2007/09/pr

    All this to say that for every trivial victory such as Tim Hortons there is a story that indicates what a disaster the Conservative policy towards Canadian shareholders and businesses has been.

  20. Another question:

    Why isn't the Harper government trumpeting their policy to gut Income Trusts? I understand that the market value of Canadian Income Trusts/Royalty Trusts decreased by 35 Billion dollars in the months that followed the Harper government announcement. It also lead to foreign takeovers in the oil/gas sector as market valuations declined.

    One example of this is Primewest Energy. No new taxes were generated by this foreign takeover, in fact it led to a tax loss as Canadian unitholders (who paid taxes) were replaced by a foreign entity who do not pay Canadian corporate tax.

    Primewest Energy Trust -Bought for Nothing Down & No Income Taxes: <a href="http://caiti-online-media.blogspot.com” target=”_blank”>http://caiti-online-media.blogspot.com

    All this to say that for every trivial victory such as Tim Hortons there is a story that indicates what a disaster the Conservative policy towards Canadian shareholders and businesses has been.

    • The only people whining about Income Trusts are rich people who were taking advantage of a tax loophole. Boo Hoo.

      Primewest Energy collapsed because the stock it owned collapsed. That's the marketplace.

      • Get real bud, lot's of seniors and ordinary investors lost money. I've no idea if it was in the national interest or not. But try not to make your point by framing your arguments with gross exaggeration.

        • The only gross exaggeration is that tax loophole protected dividend income investors are not generally wealthy.

      • And the market for it collapsed why?

        All together now… because Stephen Harper lied about not taxing income trusts.

        • Thwim, the collapse was with the stocks that Primewest owned, it had nothing to do with changes in legislation.

      • Primewest Energy was an oil/gas royalty trust. It owned no stock. It was a producer that was nailed by a bad conservative policy that forced it's owners to sell into a foreign entity's hands. That entity will pay no Canadian tax.

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