Bramwell’s Lunch Beat: Is an Inversion Next on Burger King’s Menu?

Jason Bramwell
Staff Writer and Editor
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The Republican civil war on taxes is coming
A specter is haunting the Republican Party – the specter of Ronald Reagan’s tax cuts, Matt O’Brien of Washington Post Wongblogwrote on Friday.

For the last 35 years, the GOP has monomaniacally focused on lowering taxes on the rich. It's one part economic theory, and another party political mythology, O’Brien noted. The theory is that letting high-earners keep more of their money gives them the incentive to make and invest even more, which creates growth that benefits everybody. And the political mythology is that this is what made Reagan so popular. That's why, no matter what the problem, Republicans insist that government is not the solution; tax cuts for the wealthy are.

“There's only one hitch: none of this is really true,” O’Brien wrote. “Sure, incentives matter. But so do other things. Indeed, the economy grew faster after Bill Clinton raised the top rate to 39.6 percent than it did when Reagan cut it to 28 percent. Not only that, but, adjusted for inflation, stagnant median wages the past 25 years show that tax cuts for the rich have not, in fact, trickled down. So it's no surprise that ‘supply-side economics’ hasn't been a political winner since the 1980s. Republicans have lost the popular vote in five of the last six presidential elections, and no, that's not because they haven't promised deep enough tax cuts. Mitt Romney, you might remember, ran on bringing the top marginal rate down to the same sacrosanct level it was when Reagan left office.”

He added that some Republicans think it’s time for their party to confront the reality that it’s not 1980 anymore.

“For one, there isn't as much bang for the tax-cutting buck when you bring rates from 40 to 25 percent as there was when Reagan brought them from 70 to 28 percent,” O’Brien wrote. “For another, cutting the federal income tax doesn't help the 40 percent or so of households that don't pay it. And, finally, you can't blithely assume that growth will eventually reach the middle class when it hasn't for decades. In other words, we have different problems today that demand different solutions than 35 years ago.”

Burger King in talks to buy Tim Hortons and move to Canada
Michael J. De La Merced of New York Times DealBookwrote that Burger King said on Sunday that it was in talks to buy Tim Hortons, the Canadian doughnut-and-coffee chain, in a potential deal that would create one of the world’s biggest fast-food businesses.

If completed, the deal would mean Burger King’s corporate headquarters would move to Canada, raising the specter of yet another American company switching its national citizenship to lower its tax bill.

Under the expected terms of the deal, Burger King would create a new corporate parent that would house both chains, which would be operated independently, De La Merced wrote. Together, the two companies would have a market value of more than $18 billion. An agreement could be reached as soon as this week, a person briefed on the matter said.

Though the two companies are expected to argue that a merger would bring a host of strategic benefits, it would nevertheless count as a so-called corporate inversion. Many American companies have looked toward taking over foreign companies, and then moving their headquarters abroad, to lower their overall tax bill.

The US corporate tax rate is about 35 percent, while Canada’s is about 15 percent. But people briefed on the deal negotiations said that the main driver in the talks was not taxes. Burger King already pays a tax rate of roughly 27 percent, and would shave off only a couple of percentage points by moving to Canada, according to the people briefed on the matter, De La Merced wrote. Burger King also does not have a significant amount of cash held abroad, these people said. Companies often pursue inversions to gain access to their overseas cash without being hit by a big American tax bill.

Tax dodge used by Bain escapes scrutiny on inversions
Zachary R. Mider of Bloombergreported on Monday that Sensata Technologies Holding NV of the Netherlands, a company first founded in 1916 as General Plate Co. and whose top executives are still based in Attleboro, Massachusetts, is one of at least 13 firms that have left the US tax system through a sale to an investment fund, according to a tally by Bloomberg News.

Although these companies have a combined market value of about $75 billion, this tax-avoidance strategy has gotten less attention in Washington than inversions and may be harder to discourage.

Sensata didn’t become Dutch by an inversion that has alarmed President Obama and that the US Treasury Department and some Democrats in Congress are trying to curb. That technique, which involves reincorporating overseas without a change in majority ownership, has helped more than 40 US companies lower their tax bills.

These buyouts mean profits for the US private equity firms like Boston-based Bain Capital LLC that orchestrated them. Bain earned more than $3 billion after it took Sensata public as a Dutch company in 2010, with an effective tax rate about one-tenth of some competing manufacturers, Mider wrote.

The buyout deals promise to be trickier to regulate, because they involve US companies that are technically sold to a foreign acquirer – typically a shell company set up by the buyout fund in a tax-friendly jurisdiction like Bermuda, according to the article. Policymakers are loath to penalize takeovers by genuinely foreign acquirers. A 2004 law targeting inversions didn’t address the technique at all.

Tax-smart philanthropy made easy
In an article for the Wall Street Journal on Friday, Laura Saunders asked: What do the bull market, booming mergers and acquisitions, and possible changes to the tax laws have in common? They all signal that it is a good time to open a charitable-gift fund – or add to one that already exists.

Also called donor-advised funds, the accounts offer charitably minded investors an easy, low-cost, and tax-favored way to manage their giving – and even to maximize it.

While other charitable vehicles have waxed and waned, charitable-gift funds have grown in popularity ever since Fidelity Investments Chairman Edward C. “Ned” Johnson III recast an old charitable arrangement in the early 1990s, Saunders wrote. The move enabled investors whose donations range from several thousand to several hundred thousand dollars a year to reap many of the benefits of a private foundation without their high costs and hassles.

Now, more than 200,000 donors have accounts with more than 1,000 sponsors of charitable-gift funds, according to the most recent survey by National Philanthropic Trust, an administrator of the funds.

Grants made from donor-advised funds still amount to less than 5 percent of total giving in the United States, though such funds are by far the fastest-growing charitable vehicle. New contributions to them at the four largest sponsors, which account for half the total, rose to $7.4 billion for the fiscal year ended June 30, more than triple the amount for 2009, according to the article.

A simple tax reform can help families and promote economic growth
In a Sunday op-ed for the Wall Street Journal, Amity Shlaes, chair of the board of the Calvin Coolidge Presidential Foundation, and Chris Edwards, director of tax policy studies at the Cato Institute, wrote that US politicians should turn to a tax program already road-tested in Canada to help middle-class Americans.

“It's called the Tax-Free Savings Account, and TFSA, as most Canadians refer to it, is a roaring success,” they wrote. “Though these savings accounts were introduced only five years ago, 48 percent of Canadians have already signed up. That compares with only 38 percent of US households owning any type of IRA – though IRAs have been around for decades. At the end of 2013 Canadians held $109 billion in assets in TFSAs. In an economy our size that would be the equivalent of $1 trillion.”

Canada's TFSAs are like Roth IRAs – but supercharged. Citizens may deposit up to $5,500 after-tax each year, and all account earnings and withdrawals are tax-free, Shlaes and Edwards noted. However, unlike Roth IRAs, funds can be withdrawn at any time for any reason with no penalties or taxes. Another feature: The annual limit on a contribution carries over from year to year if a citizen doesn't reach it. So if a Canadian contributes $2,000 this year, he can put away up to $9,000 next year ($3,500 plus $5,500).

“We believe this new tax vehicle – call it the Universal Savings Account – would be so attractive that Americans would select it over education savings accounts or traditional programs, especially if its annual contribution limit is $7,000 or $8,000, which is higher than the current $5,500 for Roth IRAs,” they wrote. “There would be no need to cut off access to or abolish the Roth IRA or other programs. Merely let citizens choose a new one.”

2012 Individual Income Tax Returns complete report (Publication 1304) now available
The IRS announced on Friday that the report Statistics of Income – 2012, Individual Income Tax Returns (Publication 1304) is now available. US taxpayers filed 144.9 million individual income tax returns for tax year 2012, down 0.3 percent from 2011. The adjusted gross income less deficit reported on these returns totaled 9.1 trillion, which is an 8.7 percent increase from the prior year.

The report is based on a sample drawn from the 144.9 million individual income tax returns filed for tax year 2012 and provides estimates on the following:

  • Sources of income
  • Adjusted gross income
  • Exemptions
  • Deductions
  • Taxable income
  • Income tax
  • Modified income tax
  • Tax credits
  • Self-employment tax
  • Tax payments

Classifications include:

  • Tax status
  • Size of adjusted gross income
  • Marital status
  • Age
  • Type of tax computation

A brief text reviews the requirements for filing tax returns, explains the changes in tax law, and describes the sample used to produce the report.

Publication 1304 is currently available for download at

Quick Links:

  • Who will be the next CEO of Deloitte? (Going Concern)
  • Homer Simpson shares Grover Norquist’s anger over George Bush’s broken taxpayer protection pledge (Going Concern)
  • Using tax credits to pay premiums gets complicated (Associated Press)
  • Investing in tax inversions: What’s the next target? (CNBC)
  • Cutting the corporate tax would grow other problems (New York Times)
  • One way to fix the corporate tax: Repeal it (New York Times)
  • No inversion is not unpatriotic. Yes we need corporate tax reform (Forbes)
  • Burger King’s tax inversion and Canada’s favorable corporate tax rates (Forbes)
  • H&R Cell Block? Tax refund scam from prison yields more prison (Forbes)
  • Tax strategies for a windfall year (Forbes)
  • G-20 plans for world without tax evasion (Forbes)
  • Home sweet RV does not always produce best tax result (Forbes)
  • New tax head says she knows why Italians don’t pay taxes: They’re Catholic (Forbes)
  • Tax incentives for electric and hybrid plugins: Five tips (Christian Science Monitor)
  • Kansas governor faces tax cut challenge (USA Today)
  • The making of an NYC tax hike (New York Post)
  • Japan said to plan tax-free investing program for kids (Bloomberg)
  • Coverdell Education Savings Account’s pre-college options (Don’t Mess With Taxes)
  • District Court refuses to read “reasonableness” requirement into IRC § 6332 (Tax Litigation Survey)
  • First Circuit holds tax characterization agreement not needed for FCA deduction (Tax Litigation Survey)


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