It is not the same thing. You do not have claim on a company’s assets, that is one of the effects of creating a limited liability corporation which is a separate legal person from you. You only own a stake in the parent entity, if you own Apple, you don’t own their iPhone inventory, if you own XOM, you don’t own the oil wells. Furthermore, you’re confusing the economic consequence of paying taxes with who is actually doing the paying.
Inky here’s how I think of it.
There are two investors. Investor X and investory Y.
There is a company in the Country X (that has 0% corporate tax and 20% personal income tax) that will return 10%, and a company in the Country Y (that has 35% corporate tax and 0% income tax) that will also return 10%. Investor Y will choose to invest in the Country Y company, because it returns 10% with no personal income tax. Investor X invests in the company in Country X because he’s stupid.
By your logic, Investor Y has a higher tax burden than Investor X, despite the fact that Investor X is paying 20% on his investment and Y is paying 0%.
Corporate taxes are a cost of business that is considered by investors. If corporate taxes are high in one area, investors can simply invest someplace that will give them their required rate of return.
Personal income taxes are not adjusted for by the market. However much they are, that’s how much less money you have and you don’t have a choice. That’s why personal tax is part of your personal income tax burden, but corporate tax is not.
Obviously the investor will pick the higher after tax return, but in competetive open markets the company facing the higher corporate tax rate will not return 10%, all else equal, it will return 6.5% (because it cannot pass on the tax costs because company x will take all of its customers). Your example is not comparable. Country Y has the higher tax burden.
the real value is created from BK potentially using THI products to boost their breakfast offering, particularly in the Southern US and internationally, potentially store-in-store. obviously the two are highly complimentary and this transaction will not cannabalize revenues at all. on top of that, there is potential for BK management to do the same thing with THI locations as they did with BK locations since 2010 - sell company stores and create yet another royalty company, obviously the market likes royalty companies based on BK’s valuation. THI only really went up b/c BK went up. if BK didn’t go up 20%, THI would’ve got taken out 20% lower. i think taxes played a smaller role than the strategic benefits in boosting BK shares. in the past 2 years, we’ve seen most acquirers’ stock rise following acquisition announcements. its what the market wants right now…
^ I’m pretty sure the majority of Tims are franchises today.
yeah, you’re right. only 18 stores are non-franchised. i didn’t realize it was THAT low. THI’s assets are higher than BKW’s which makes me think they must own some buildings and leaseback to the franchisees. so THI fits well with their model then. the strategic benefits still stand.
This thread turned into a tax debate.interesting
Good times chaps
It’s not the same inasmuch as you do not have a controlling interest and cannot decide what to do with the assets. However, you do have a claim on those assets. The same goes with Bondholders, but their claim isn’t on net assets, but rather a fixed share of total gross asset. While a minority shareholder can’t direct the company to pay dividends, he *is* entitled to a proportionate share of those dividends.
You’re looking at it from a cash perspective rather than a wealth perspective. What if someone owns ten houses and has very little cash. Suppose he has a tax bill and has to sell two houses to pay that tax bill. Is he not paying taxes? What if instead of selling those houses, the government accepts the houses based on their estimated market value as payment? Is he not paying taxes since it wasn’t a cash outflow?
Buffett’s share of Berkshire is reduced by an amount equal to his proportionate share of the taxes paid. While it’s not a direct cash payment from him, it is an indirect one (like handing over a couple of houses, which the government then sells for cash). It reduced his personal wealth and it is the economic equivalent of him selling stock to pay taxes.
Burger Tim or King Horton’s?
The combined company will have a 33 year old CEO. Amazing.
and a 28 year old cfo
^ Ridiculous.