Is the Deal Between Burger King and Tim Horton’s Really an Inversion?

Is the Deal Between Burger King and Tim Horton’s Really an Inversion?

Is the Deal Between Burger King and Tim Horton’s Really an Inversion?

If you haven’t heard already, Burger King recently announced its plans to acquire Tim Hortons Inc. a Canadian coffee and doughnut chain. There is nothing wrong with that news in of itself, and depending on whom you ask there is nothing wrong with the move no matter the motives behind it. However, some are crying foul as the deal by some measures appears to be driven by Burger King’s desire to cut back on its a tax bill.

Savings A Bound

According to reports, the hamburger chain is planning to move its headquarters from Miami, Florida to lower-tax Canada. The deal will also reportedly protect Burger King from capital gains taxes. So what’s the problem with saving some money on your taxes? Actually there is nothing wrong with that, unless you are on the anti-inversion side of the argument. But is this deal really even an inversion?

Backlash Over Burgers

The deal has been getting some backlash as some see it as another tax inversion, whereby a U.S. company can avoid a major corporate tax bill in America by switching its headquarters to a foreign country. However, for its part Burger King claims the deal is really geared at capturing growth opportunities and not at saving on taxes.

Buffet Factor

Another key factor that has played a role in the argument in this situation is that billionaire Warren Buffett backed this deal. Although Mr. Buffett has been known to favor higher taxes for the wealthy, on some levels this appears to be a tax inversion, which he apparently wouldn’t have supported had he known, according to his track record. However, Mr. Buffett reportedly doesn’t consider the deal an inversion, which is why he put $3 billion of preferred shares in the deal.

An Inversion or Not?

There are two other factors that would indicate that this deal is not really an inversion. First, Burger King’s 2013 effective tax rate was 27.5 percent, which is almost identical to Tim Horton’s effective tax rate of 27 percent. Second, as the deal progressed, executives from both companies felt that because Tim Horton’s was such an iconic brand in Canada, regulators were more likely to approve the deal if they moved the headquarters to Canada.

Berkshire Provisions

Meantime, because of the move to Canada, Mr. Buffet’s company, Berkshire Hathaway, will have to pay more in U.S. taxes because of U.S. dividend laws from foreign entities. Reportedly Mr. Buffet wanted his company to be compensated for the higher tax bill from the move, which could be more than $50 million. He therefore negotiated a deal that would make up for the difference. The agreed-upon preferred-stock investment deal will now pay Mr. Buffet’s company a dividend of about 9 percent, which equals about $270 million a year.

GROCO Helps You Save

It appears in this case, that although the deal could save Burger King some money on its taxes, there is a lot more behind the deal than just lowering the company’s tax bill. In any case, saving money on taxes is not a bad thing and every company is entitled to legally save as much as it can. At GROCO we can help you and your company save on taxes. Just give us call as 1-877-CPA-2006.

 

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Alan Olsen, CPA

Alan Olsen, is the Host of the American Dreams Show and the Managing Partner of GROCO.com.  GROCO is a premier family office and tax advisory firm located in the San Francisco Bay area serving clients all over the world.

Alan L. Olsen, CPA, Wikipedia Bio

 

 

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