Warren Buffett, chief executive officer of Berkshire Hathaway Inc., speaks during a panel discussion at a Goldman Sachs 10,000 Small Businesses event in Detroit, Michigan, U.S., on Thursday, Sept. 18, 2014.Jeff Kowalsky/Bloomberg
Billionaire investor Warren Buffett, who agreed to help finance Burger King Worldwide Inc.'s planned takeover of coffee-and-doughnut chain Tim Hortons Inc., said the deal wasn't motivated by taxes.
"The highest amount of federal taxes that Burger King has paid in any of the last three years has been $30 million," Buffett said today on MSNBC. That's a fraction of the more than $11 billion that the Miami-based fast-food chain agreed to pay for Oakville, Ontario-based Tim Hortons. The combined company will be based in Canada, which has a lower federal tax rate than the U.S.
President Barack Obama's administration and Congress have been weighing how to dissuade U.S. businesses from moving to other nations in search of lower corporate tax bills. Between mid-June and late July, at least five large American companies announced plans to make such a shift, known as an inversion. That includes AbbVie Inc. and Medtronic Inc.
Buffett said that while the Burger King deal fits the definition of an inversion, it should be distinguished from transactions in which companies shift valuable intellectual property to other nations. Inversions can also limit obligations to the U.S. on profits earned abroad.
"There isn't a whole lot of intellectual property to transfer with hamburgers," Buffett said. "This is not a case of trapped cash, it's not a case of intellectual property. It's a case of the larger company being in Canada."
3G Capital
Those assertions could be disputed. While Canada will be the combined company's largest market and Tim Hortons generates more revenue, the U.S. company had a bigger market capitalization before the businesses announced they were in merger talks. Burger King's controlling shareholder, 3G Capital, will also have a majority stake in the combined company.
Mimicking a practice that's become routine among pharmaceutical and technology firms, some food-service companies also have shifted profits to low-tax nations by transferring intangible assets, such as brand names, to subsidiaries in those countries and then charging royalties for their use.
Getting a foreign address would increase the savings generated by such a maneuver, and it also might allow Burger King to attempt the strategy in the U.S., currently its biggest market. Burger King already reduces its taxes in countries including Germany through payments to a Swiss affiliate that owns brand rights, Reuters reported this month, citing a 2012 company statement to the news service.
Buffett's Berkshire Hathaway Inc., based in Omaha, Nebraska, agreed to invest $3 billion for a preferred stake in the new company paying an annual dividend of 9 percent.