By Robert Laurie ——Bio and Archives--August 26, 2014
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Even as corporate profits are as high as ever, a small but growing group of big corporations are fleeing the country to get out of paying taxes. They're keeping most of their business inside the United States, but they're basically renouncing their citizenship and declaring that they're based somewhere else, just to avoid paying their fair share. I want to be clear: this is only a few big corporations so far. The vast majority of American businesses pay their taxes right here in the United States. But when some companies cherrypick their taxes, it damages the country's finances. It adds to the deficit. It makes it harder to invest in the things that will keep America strong, and it sticks you with the tab for what they stash offshore. Right now, a loophole in our tax laws makes this totally legal – and I think that's totally wrong. You don't get to pick which rules you play by, or which tax rate you pay, and neither should these companies.We could point out that the President is the king of deciding which laws "rules" he plays by, but let's just get to the good part. Whenever Obama needs to justify higher taxes, there's always one name he brings up: Warren Buffett. If the President is to be believed, Buffett is a financial genius whose opinions on US taxes are second to none. That's usually because he's advocating increases. Unfortunately, the President who thinks inversions are "unpatriotic" now has a problem on his hands. His taxation poster child, Warren Buffett, is financing the move. As the WSJ reports, Buffett's company is dumping $3 Billion into the deal:
Adding a twist to the deal, legendary investor Warren Buffett's Berkshire Hathaway Inc. is providing $3 billion in preferred equity financing, throwing him into the center of the debate over U.S. tax policy.Yes, Obama's tax guru is helping to grease the wheels of this inversion. Why? Yahoo finance has a good breakdown:
So what's in this for Warren? Billions. This isn't about taxes, but endorsements and relationships. Burger King's majority owner is 3G, a Brazilian PE firm led by 74 year old billionaire Jorge Paulo Lemann. Last year 3G and Berkshire partnered to buy Heinz. Berkshire laid out $8 billion for preferred shares that will pay back $1 billion a year and another $4.25 billion for Heinz common stock. There aren't any terms being leaked on this BK deal yet but Buffett has never been shy about demanding a premium. Expect Berkshire to get at least 10% on the $2.5 billion investment. Still this is small potatoes for Berkshire which is sitting on more than $55 billion in cash at last count. The real reason Buffett has to be involved is to protect Berkshire's 9.1% ownership interest in Coke (KO). Burger King is married to Heinz but its drink business is up for grabs. 3G has already pushed for a switch to Pepsi (PEP) in Latin American markets. With earnings flat since 2011 Coke can little afford to lose soda market share, let alone miss growth opportunities for Coke's non-carbonated products. Right now BK sells Nestle's bottled water. While a switch to Coke's Dasani probably won't be explicitly part of this financing package let's just say Berkshire's involvement doesn't hurt.In the end, Buffett and Berkshire Hathaway stand to make billions from the inversion while shoring up their various holdings and relationships. Sounds like a smart plan, but does this mean that Obama suddenly thinks his tax genius is just another "unpatriotic" fat cat?
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