NC Budget and Tax Center

Profiles in tax avoidance: Yum! Brands

When Thanksgiving rolls around, no one wants to watch someone else eat all the turkey and then have to pick up the grocery bill all by themselves. But that’s what’s happening in our nation’s budget debate—highly profitable multinational corporations are using special tax loopholes, credits, deductions, and outright giveaways to avoid paying their fair share of taxes while asking the rest of us to pick up the tab for fixing our nation’s budget challenges through spending cuts to key investments that help grow the economy. Even worse, at a time when many families will be celebrating their Thanksgiving blessings or sharing those blessings with less fortunate friends and neighbors, many in Congress are trying to protect these tax loopholes while simultaneously cutting federal food assistance for hungry families.

That’s why N.C. Policy Watch and the N.C. Budget and Tax Center are continuing to shine a light on corporate tax dodging. In recent years, corporate profits have neared record highs while corporate tax collections are at a 30-year low, so now is the time to raise new revenues, rather than asking hungry families to bear the brunt of addressing our nation’s budget challenges. And an excellent source of new revenues involves the billions of dollars in corporate tax loopholes, deductions, credits, and outright giveaways that allow too many multinational corporations to avoid paying their fair share of taxes. So instead of giving all the turkey to profitable corporations and asking the rest of us to foot the bill, let’s ask these profitable companies to pay their fair share for Thanksgiving dinner.

To underscore this message, N.C. Policy Watch and the N.C. Budget and Tax Center are continuing to profile a number of corporate tax avoiders with strong connections to North Carolina (Click here to read previous profiles of Duke Energy, Merck & Co. and International Paper).

And keeping with the holiday theme of food, this month, we’re focusing on the highly profitable fast food giant Yum! Brands, revealing the following:

  1. the size and scope of their businesses,
  2. the taxes they have avoided paying in recent years, and
  3. the methods they use to accomplish this.

Company: Yum! Brands

Originally incorporated in North Carolina and now headquartered in Kentucky, Yum! Brands is the largest fast food company in the world in terms of sheer restaurant numbers—more than 40,000 restaurants in 130 countries, with an average of five new stores opening every day.  As owner of such franchise brands as Taco Bell, KFC, and Pizza Hut, this Fortune 500 company is one of the most commonly seen and visited businesses in North Carolina. Like most of its major competitors in the fast food market, Yum! operates as a franchise, in which local store owners use various Yum! brand trademarks and sell Yum! brands products in return for a franchising fee. More than 80 percent of Yum! stores operate as a franchise, while the company has retained ownership of about 20 percent of its stores. The company earned $13.6 billion in revenues in 2012.

Over the past several years, Yum! has come under fire for its labor practices—including  unpaid overtime, failure to pay minimum wage, denial of meal and rest breaks, improper wage statements, and wrongful termination. This resulted in multiple class action lawsuits filed between 2006 and 2010 and waves of strikes at local stores across the country. Perhaps in response to the problems, Yum! Brands has undertaken a significant overhaul of its corporate image, resulting in a top 100 ranking for best corporate citizens in America by Corporate Responsibility Magazine. Unfortunately, this ranking does not account for the company’s egregious tax dodging over the past five years. An additional irony—especially during the Thanksgiving holidays—is that Yum! Brands pays extremely low wages, which have forced many of its employees to take second and third jobs or enroll in Medicaid, food assistance, and other safety net programs. So not only is Yum! Brands failing to pay taxes, it’s also increasing costs for these safety net programs—a doubly bad bargain for taxpayers.

Principal tax avoidance strategy:

Over the past several years, multinational corporations based in the United States have made record profits—and stashed those profits in offshore accounts. Most of these profits were earned here in the United States, but were shifted into these foreign tax shelters expressly in order to avoid U.S, corporate income taxes. As an analysis by the non-partisan Citizens for Tax Justice makes clear, the corporate income tax code treats these profits as “foreign” because they reside outside the United States, and as a result, they cannot be subjected to U.S. taxes until they are repatriated—or returned to the United States.

In effect, companies like Yum! that stash profits in offshore accounts are able to shelter these profits from American taxation, dramatically reducing their overall tax liability.

Yum! Brands is hardly alone in stashing profits earned in America in offshore accounts over the past five years.  In fact, no less than 92 Fortune 500 corporations each boosted their individual offshore profit holdings by at least $500 million in 2012—adding an additional total $229 billion to their offshore holdings in that year.

Taxes avoided:

According to analysis by the Institute on Taxation and Economic Policy (ITEP), Yum! Brands reported about $1.8 billion in taxable profits to the United States government from 2008 through 2012.  During this period, however, the fast food giant shifted an additional $1.5 billion in overseas profits into offshore bank accounts—effectively sheltering these profits from the corporate income tax. By 2012, Yum! had stashed a total of $2.6 billion in these offshore, tax-free accounts. By excluding these profits from taxation, the company was able to significantly reduce the effective tax rate it had to pay to an estimated 14.3 percent—a fraction of the statutory 35 percent federal corporate income tax rate.

Public services not provided that Yum!’s taxes could have paid for:

As is becoming more apparent every day, the federal decision to implement billions of dollars’ worth of “sequestration” cuts in 2013 is beginning to take a real toll in North Carolina. For instance, sequestration cuts have dramatically reduced the number of children participating in Head Start— a program that helps children from low-income families from birth to age 5 to help make sure they are ready for kindergarten.  This is one of the many crucial investments in early childhood program that have generated positive long-term academic achievement and regional economic performance. Among the documented impacts of sequestration are:

If Yum! Brands and other large corporations paid their fair share in federal corporate income taxes many—if not all—of these painful cuts could be avoided.

The bottom line:

Yum! Brands is a highly profitable international corporation that continues to be one of the pillars of the global fast food industry. Part of being a good corporate citizen, however, involves paying the taxes that help make success possible—taxes that provide the roads that make the company’s franchise model profitable for shipping products around the country and that are currently providing the healthcare and food assistance necessary to counteract the company’s low wages. If companies like Yum! are allowed to continue offshoring their profits and avoiding their taxes, the rest of us are going to have to pick up the tab—either through more spending cuts or through the deterioration of the services that benefit us all and made Yum!’s success possible.

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