BURGER King and US tycoon Warren Buffett were forced to defend a £7bn (£4.25bn) takeover of Canadian chain Tim Hortons yesterday amid mounting political tension in America over tax inversions.
The Miami-based giant said it would buy the coffee and doughnut chain for $11.4bn and relocate to Ontario, Canada - seemingly to benefit from its lower taxes.
Burger King, which is owned by private equity group 3G, had been liable for a 39.1 per cent tax rate in the US in future - the highest in the developed world - but can now benefit from Canada's 26.3 per cent rate.
Buffett is backing about 25 per cent of the deal, the largest ever takeover of a Canadian firm by a US outfit, contrasting with his reputation as a longstanding critic of Americans who try to lower their tax bills.
Buffett, who will provide $3bn for the deal through his Berkshire Hath-away vehicle, gave his name to a tax plan proposed by President Barack Obama in 2011. The so-called Buffett Rule, would see people earning more than $1m pay a minimum tax rate of 30 per cent.
Burger King boss Daniel Schwartz said tax was not the main driver of the deal. "Burger King will continue to pay taxes in the United States. We do not expect there to be a meaningful reduction in our tax rate," he said.
Burger King's blended tax rate was 27.4 per cent last year, but it is expected to rise in future. "While the shortterm benefit isn't apparent when compared to Ontario's corporate tax rate, the savings over time could be meaningful as Burger King moved closer to the statutory rate for the US," Stephens' analyst Will Slabaugh said.
Obama has been a stringent critic of tax inversions, calling on companies to display "economic patriotism" and remain domiciled in the US pharmacy Walgreen refused to move its tax base to Switzerland last month when it bought a remaining stake in Alliance Boots amid concerns of an impending political backlash.
Some Burger King diners in the US threatened a boycott of the chain on the firm's Facebook page last night, in light of the tax shift plan.