Bramwell’s Lunch Beat: Burger King’s Whopper of a Deal

Boehner, Camp profit from corporate bid to avoid US taxes
Richard Rubin of Bloomberg reported on Tuesday that House Speaker John Boehner (R-OH) and House Ways and Means Committee Chairman Dave Camp (R-MI) profited from a corporate tax-avoidance maneuver that the US Treasury Department is seeking to curb.

The two lawmakers reported the sale of stock in Covidien PLC within nine days of US-based Medtronic Inc. saying it was planning a takeover, an announcement that sent Dublin-based Covidien’s shares near a 52-week high. The deal, one of several that have sparked a national debate over US corporate tax policy, would put the combined company’s headquarters in Ireland and reduce its tax rate through a so-called inversion.

Boehner, the top Republican in Congress, and Camp, whose committee controls tax policy, haven’t backed a proposal by President Obama and Democrats for a retroactive law that would penalize the Medtronic-Covidien deal and seven others, Rubin noted.

According to an analysis of public disclosures, the lawmakers still hold Medtronic shares – and Camp bought additional stock after the medical-device maker announced the transaction, according to the article. Those holdings, though only a small part of the two multimillionaires’ stock portfolios, give them an interest in the deal’s completion, along with their ability to influence the outcome.

Their actions are legal, and spokesmen for both say the congressmen weren’t involved in the financial decisions and that the trades were made by their investment advisers, Rubin wrote. Boehner and Camp say the United States should address the issue in a broader revamp of the tax code that reduces the corporate rate and provides a more permanent solution to the problem.

Burger King confirms deal to buy Tim Hortons for about $11 billion
Erin McCarthy of the Wall Street Journal reported on Tuesday that Burger King Worldwide Inc. agreed to buy Canadian coffee-and-doughnut chain Tim Hortons Inc. for about $11 billion, confirming plans to move the iconic American brand north of the border under a tax inversion deal.

Adding a twist to the deal, legendary investor Warren Buffett is helping to finance the takeover, throwing him into the center of the debate over US tax policy. His firm Berkshire Hathaway Inc. has committed $3 billion of preferred equity financing.

The deal would create the world's third-largest quick-service restaurant company, with about $23 billion in system sales and more than 18,000 restaurants in 100 countries. The new global company will be based in Canada, though each brand will be managed independently after the deal's completion, the companies said.

Tim Hortons shareholders will receive C$65.50 in cash and 0.8025 shares of the new company for each share, valuing the restaurant company's stock at C$94.05 based on Monday's close, McCarthy wrote. As an alternative, shareholders will be able to choose to receive either C$88.50 in cash or 3.0879 shares of the new company.

The acquisition of Tim Hortons, which is Canada's largest quick-service chain and has a market capitalization of about $10 billion, would have to win Canadian government approval. That means Burger King, which is controlled by Brazilian private-equity firm 3G Capital Management, would have to show that the deal provides a so-called net benefit to Canada, according to the article.

Berkshire to pay US tax rate on Burger King investment
More on Warren Buffett’s role in Burger King’s acquisition of Tim Hortons from Anupreeta Das of Wall Street Journal MoneyBeat. She wrote on Tuesday that Buffett’s Berkshire Hathaway will pay the US corporate tax rate on any income it receives from helping to finance the takeover, according to a person familiar with the deal.

Under the agreement, the merged company will be based in Canada. For Berkshire, which is providing $3 billion of the total $12.5 billion in financing for the deal, there won’t be significant tax savings by having the company based in Canada, the person said.

If the deal is approved, Berkshire will get preferred stock in the combined Canadian company. The preferred shares will pay Berkshire a dividend at a high interest rate, Das wrote.

However, because Berkshire is a US company based in Omaha, Nebraska, it would pay US federal corporate taxes at the rate of 35 percent on the dividend amount. Canada’s federal corporate income tax rate is about 15 percent.

Berkshire has structured its portion of the deal so that it gets compensated for more than $50 million in higher taxes it expects to pay as a US financier, the person familiar with the matter said. In other words, the combined Burger King-Tim Hortons will help subsidize Berkshire’s higher tax bill, Das wrote.

Canada has the most business-friendly tax policy in the world
Speaking of Burger King’s acquisition of Tim Hortons, Myles Udland noted in an article Monday for Business Insider that Canada is one of the most business-friendly countries in the world – at least when you look at the total tax cost for companies operating in some of the world’s biggest economies.

According to a recent KPMG study, the accounting firm examined the tax costs of doing business in 10 major economies: Australia, Canada, France, Germany, Italy, Japan, Mexico, the Netherlands, the United Kingdom, and the United States. Using the US tax rate as a benchmark of 100, the report found that Canada has the lowest total tax costs, with costs coming in 46.4 percent lower than those in the United States.

On the basis of simply an effective tax rate, Burger King wouldn't appear to be getting that much of a break in acquiring Tim Hortons, Udland wrote. This table from KPMG shows the corporate tax rate in Canada is 26.5 percent, which compares with 40 percent for the United States.

According to Burger King's most recent 10-K, in 2013 the company's effective tax rate was 27.5 percent, so not much higher than the Canadian corporate tax rate, Udland noted.

GOP accuses IRS of conflict of interest
Bernie Becker of The Hill reported that House Republicans charged the IRS with a conflict of interest on Monday, insisting that a government lawyer that represented the agency previously took part in the IRS’s improper scrutiny of conservative groups.

US Justice Department lawyer Andrew Strelka represented the IRS in a lawsuit filed by Z Street, a pro-Israel group that said the government singled out its application for tax-exempt status because its ideology was at odds with that of President Obama.

Before that, Strelka worked for the IRS’s Exempt Organizations (EO) division. House Oversight and Government Reform Committee Chairman Darrell Issa (R-CA) and Rep. Jim Jordan (R-OH) suggested on Monday he played a role in the handling of Tea Party applications that has left the agency under siege for well over a year, Becker wrote.

Issa and Jordan pointed to Strelka’s role at the IRS as they once again called on US Attorney General Eric Holder to appoint a special prosecutor to investigate the agency. They added that Strelka’s tenure at Justice and the IRS was just the latest example of a conflict of interest in the government’s investigation of the Tea Party controversy.

“Perhaps new information obtained by the committee will spur you to reconsider your decision and you will finally appoint a special counsel to get to the bottom of the IRS scandal,” Issa and Jordan wrote in a letter to Holder, according to the article.

Judicial Watch: Lerner emails aren’t missing
Becker also reported on Monday for The Hill that the conservative group Judicial Watch, which is suing the IRS, said the Obama administration has acknowledged that ex-IRS official Lois Lerner’s emails are recoverable.

Judicial Watch, which says it was among the groups that the IRS improperly scrutinized, said that Justice Department attorneys told the group late last week that the government backed up all emails in case of catastrophe. The government lawyers added that the problem was not that the emails couldn’t be found, but that the backup system was too onerous to search, Judicial Watch President Tom Fitton said on Monday.

“This is a jaw-dropping revelation. The Obama administration had been lying to the American people about Lois Lerner’s missing emails,” Fitton said in a statement, according to the article. He added that the group would bring the government’s statements up with Judge Emmet Sullivan, who is presiding over the group’s lawsuit.

But an administration official with knowledge of Friday’s conversation said Justice Department lawyers had dropped no bombshells last week, and that Judicial Watch was mischaracterizing what the government had said, Becker wrote.

The official said that Justice lawyers were only referring to tapes backing up IRS emails that were routinely recycled twice a year before 2013, when the investigation into the Tea Party controversy began, according to the article.

US judge questions shareholder settlement with HP over Autonomy
A US judge cast doubt on Monday over a proposed agreement struck between Hewlett-Packard Co. (HP) and plaintiff shareholders to settle a lawsuit over the computing giant's botched acquisition of Autonomy PLC, Dan Levine of Reuters reported.

At a hearing in San Francisco yesterday, US District Judge Charles Breyer rejected several million dollars in fees that shareholder attorneys would have recouped under the settlement. “That's out,” he said, according to the article.

In order to approve the remainder of the deal, Breyer said he would have to make further inquiries into whether dismissing claims against HP officers, including current CEO Meg Whitman, was fair for shareholders.

HP announced a $8.8 billion (5.31 billion pounds) writedown in November 2012, just over one year after buying Autonomy, and linked more than $5 billion to accounting fraud and inflated financials by Autonomy executives, Levine wrote. The British company and its executives have denied any wrongdoing.

Under the terms of the settlement reached in June, shareholder attorneys agreed to drop all claims against HP’s current and former executives, including Whitman, board members, and advisers to the company. HP, in turn, agreed to team up with the shareholder attorneys to bring claims against former Autonomy executives, including Chief Executive Michael Lynch. The shareholder attorneys would have recouped at least $18 million in fees, according to the article.

Quick Links:

  • The name of EY’s new audit tool implies audits belong in the Louvre (Going Concern)
  • Ambitious intern totally prepared to make the leap to Deloitte CEO like tomorrow (Going Concern)
  • Sex and professional ethics, round 2 (Going Concern)
  • Deloitte records fourth consecutive year of growth (economia)
  • Bank reforms should be shelved, says KPMG (economia)
  • Ex-KPMG senior partner to head Grant Thornton assurance (Accountancy Age)
  • Deloitte accused of costing taxpayers £50m for botched administrations (Accountancy Age)
  • Making Ryan’s tax plan smarter (Bloomberg View)
  • What to do when the boss is a tax evader (CFO)
  • Have you heard the one about death and taxes? (MarketWatch)
  • Burger King fans call for boycott over tax dodge (Huffington Post)
  • Time for a grand bargain on corporate tax reform (The Hill)
  • When a hamburger becomes a doughnut and other lessons about tax inversions and globalization (Cato Institute)
  • IRS has no clue where gaming tax money is going (Daily Caller)
  • Obamacare might kill your tax refund (Daily Caller)
  • Tax Geek Tuesday: Computing earnings and profits (Forbes)
  • Small taxes that create big costs (Forbes)
  • How to help your child retire with an extra $450,000, tax free (Forbes)
  • Estate planning: A ranking of good assets and bad assets (Forbes)
  • Fracking taxes help states now, but what about the future? (Tax Analysts)
  • Good news for US Canadian dual nationals (Due Diligence)
  • Guilty plea in unreported Israeli and Swiss accounts case (Due Diligence)
  • Bridging the gap between what clients want … and what they’ll pay for (Dinesen Tax Times)
  • Oops! They did it again (Wandering Tax Pro)
  • Cleveland’s ‘jock tax’ is legally justifiable, state tells Supreme Court (Cleveland Plain Dealer)
  • Austrian Finance Minister Michael Spindelegger quits in tax-reform dispute (Wall Street Journal)

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