The big corporate news of the day is that Burger King is in talks to acquire Canadian coffee and doughnut chain Tim Hortons.
Besides the possible linking up of two iconic brands, each strongly associated with its home country, the deal is significant because it would be a tax inversion for Burger King. If the deal is consummated, Burger King would become a Canadian company and pay a lower tax rate.
Tax inversions have been a big theme of 2014, as several companies (largely in the pharmaceutical space) have acquired foreign rivals to move their tax base elsewhere.
These deals have infuriated some in Washington, and the loss of an iconic brand only adds fuel to the fire. There has been talk of legislation to limit tax inversions, but in this political climate, the idea of anything actually passing both houses of Congress seems very slim. So earlier this month, the White House said it may use an executive order to limit tax inversions, though it remains unclear how much teeth any executive order would have.
Either way, this warning (or threat) apparently is not much of a deterrent to deals being commenced.
Greg Valliere of Potomac Research says that Burger King’s actions are a direct statement to the White House and the Treasury, basically daring them to back up their warning with action:
So much for the theory that Treasury could chill future inversion deals by hinting of possible action. The Burger King deal throws down the gauntlet, and Treasury almost certainly will have to respond by proposing curbs on interest payment deductions. We still don’t expect regulations to be finalised until early next year, after a deliberative comment period, but we think there’s a good chance that Treasury will get a phone call today from the White House, urging quicker action.
Meanwhile, the news gives Democrats another talking point. The potential departure of an iconic American company because of “corporate greed” will be trotted out on the campaign trail.
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