BUSINESS

Tax Inversion Crackdown Prompted By Burger King-Tim Hortons Deal: Analysts

09/23/2014 11:33 EDT | Updated 09/23/2014 11:59 EDT
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U.S. President Barack Obama pauses while speaking at the Democratic National Committee's (DNC) annual Women's Leadership Forum in Washington, D.C., U.S., on Friday, Sept. 19, 2014. Speaking at an event today at the White House, President Obama rolled out the 'It's On Us' campaign to encourage college students, especially men, to speak out against and prevent sexual assault on campuses. Photographer: Andrew Harrer/Bloomberg via Getty Images

The high-profile merger of Burger King and Tim Hortons was likely the catalyst for the Obama administration’s crackdown on tax inversions, analysts say.

The White House announced new, tighter rules on companies Monday that will make tax inversions, as they’re known, less lucrative.

Obama administration officials would not say if the new rules directly targeted the BK-Tims deal, but Tim Hortons said Tuesday the new rules won't affect its plans.

A tax inversion involves a company buying a company in another, lower-tax country, so it can take advantage of that lower tax rate.

Many observers say Burger King bought Tim Hortons in order to take advantage of Canada’s lower corporate tax rate, though that is something the companies involved deny.

"We've recently seen a few large corporations announce plans to exploit this loophole, undercutting businesses that act responsibly and leaving the middle class to pay the bill,” Obama said in a statement Monday.

The new rules will ban certain creative techniques companies use to lower their tax bills, and will make it harder for companies to relocate abroad by tightening certain ownership rules, the Associated Press reports.

White House officials speaking to reporters would not say whether the proposed $11.4-billion U.S. BK-Tims tie-up, announced in August, was what prompted the crackdown. But Analyst Jasper Lawler of CMC Markets says it was.

“The final tipping point for lawmakers on whether to introduce the changes to the tax code was likely the prospective deal between Burger King and Tim Hortons, which would have seen the iconic American fast-food restaurant become Canadian,” Lawler said, as quoted at the Globe and Mail.

Billionaire investor Warren Buffett, who is helping to finance the BK-Tims deal, said the deal wasn’t about dodging taxes — because Burger King already pays very low U.S. federal 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 on MSNBC.

Finance Minister Joe Oliver has also defended the BK-Tims deal, saying at a conference of G20 finance ministers in Australia last week that the deal wasn’t a case of “treaty shopping,” where a company moved abroad to avoid paying taxes.

“That is not the case in this matter at all. It’s important to make that clear distinction. This company will be paying its taxes and it will be paying taxes where it operates, in Canada, in the United States and elsewhere,” Oliver said.

He was joined at that meeting by Treasury Secretary Jack Lew, whose department introduced the new tax rules on Monday.

Oliver appeared somewhat concerned that the White House would want to apply the new rules retroactively.

We just don’t know how far that might go,” he said.

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