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Blame Burger King deal, not Warren Buffett

By Robert McIntyre
August 27, 2014 -- Updated 1319 GMT (2119 HKT)
STORY HIGHLIGHTS
  • Robert McIntyre: Burger King's purchase of Tim Hortons means it can pay less taxes
  • Robert McIntyre: Americans are right to be angry at the merger
  • He says while Warren Buffett's company is partly financing the deal, he's not to blame
  • McIntyre: Unless Congress fixes the tax loopholes, nothing will change

Editor's note: Robert McIntyre is the director of Citizens for Tax Justice, a public interest research and advocacy organization focusing on federal, state and local tax policies and their impact. The opinions expressed in this commentary are solely those of the author.

(CNN) -- Americans are rightly angry that Burger King plans to use its merger with the Canadian doughnut and coffee chain Tim Hortons to claim Canadian citizenship, probably as a way to avoid paying U.S. taxes -- which the burger chain denies. But Burger King is the latest company to undergo an inversion, which happens when an American company uses a merger to reincorporate as a foreign one.

Some have suggested boycotting the fast food chain, while others have directed their anger toward the billionaire investor Warren Buffett, whose company Berkshire Hathaway is partly financing the deal.

Buffett is famous for arguing that our tax code should be fairer and that the rich and powerful should not get more breaks than middle-income Americans -- views that some say are incongruous with his involvement in this merger.

Robert McIntyre
Robert McIntyre

But anger toward Warren Buffett is misdirected. He cannot close loopholes that allow Burger King to claim Canadian citizenship any more than he can close the loophole that allows him and fund managers to pay a smaller percentage of their income in taxes than their secretaries.

The real culprits are members of Congress, who have failed to close these loopholes and have allowed Burger King to claim that it is becoming a foreign corporation for tax purposes even when common sense tells us it is as American as any company could be.

You see, Burger King will continue to serve U.S. customers. It will not undergo much change in ownership. And it will likely continue to have its managers based in the United States. But when it's time to pay taxes, it will claim to be a newly restructured company based in Canada, which has a lower corporate tax rate.

Will Congress close tax loopholes?
Fast food controversy

It's absurd that Congress is allowing Burger King to use paperwork to avoid supporting the very public investments — highways, agriculture supports, food inspections, courts — that make its profits possible.

And just be clear on this point: Burger King probably will use this deal to avoid taxes, no matter what the company says. Defenders of these arrangements argue that profits the company makes in the United States will still be subject to U.S. taxes, but that ignores the additional loopholes that a corporation can exploit after it inverts.

For example, Burger King can take on debt from the foreign company that officially owns it after inversion and then make interest payments that wipe out its U.S. income for tax purposes. This effectively shifts the profits made in the United States to a foreign country where the company will be taxed less.

Of course, this is all an accounting gimmick since merged corporations like Burger King and Tim Hortons are really just one great big company, so a "loan" from one to the other is really like one branch of a company wiring money to another branch. But our tax rules are so poorly written that they allow this utter nonsense.

It doesn't have to be this way. A proposal from President Obama would basically tell the IRS not to recognize a company like Burger King as "foreign" for tax purposes unless it really has become a foreign company in a real sense.

This proposal has been introduced as legislation in the House and Senate, but so far a majority has not acted in either chamber. Until Congress hears from all of us outraged Americans, nothing will change, no matter what Warren Buffett does.

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