Burger King tie-up sparks tax row

published 28 August 2014

US hamburger giant Burger King is buying Canadian coffee and doughnut chain Tim Hortons for $11.4bn. The deal creates the world's third-biggest fast-food restaurant group, with around $23bn in sales and 18,000 restaurants in 100 countries.

Warren Buffett's investment vehicle, Berkshire Hathaway, has provided $3bn of financing for the deal. The new group will be based in Canada, with each brand managed independently. But both Burger King and Buffett have come in for some flack.

The move seems to be driven primarily by a desire to pay less tax in what's known as a tax inversion' deal basing a new company outside America to avoid relatively high corporation tax. The US rate is 39% Canada's is 26%.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

What the commentators said

That may not represent much of a saving compared to the Canadian rate, said Will Slabaugh of Stephens Inc, but Burger King's tax rate was set to rise in future, so "the savings over time could be meaningful".

According to Buffett, it makes sense for the company to domicile in Canada.Tim Hortons has strong roots there, and it earns more money than Burger King. Yet his apparent support for an inversion deal sits ill with his status as an investor "famed for his homespun philosophy on ethical capitalism", as Simon Neville put it in The Independent.

He has said in the past that he doesn't think corporate taxes are too high, while he has also proposed higher taxes on millionaires an idea that the Obama administration has taken him up on.

Analysts point out that Buffett has long been interested in the food sector due to its stable profits. And he is "a capitalist first and a patriot second", as one of his shareholders said. He is not concerned about the domicile of his investments, and has also said he would change the tax code to address inversion.

Even so, given the government's strong recent criticism of tax inversions, said Damian Paletta in The Wall Street Journal, "the White House might need a new poster child for its tax fairness' campaign".

Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.

After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.

His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.

Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.