By John D. McKinnon
WASHINGTON--Almost 90% of the beer made in America now is
produced by foreign-owned firms, and the U.S. tax code is one big
reason, the founder of the Boston Beer Co.--one of the largest
remaining American-headquartered beer makers--told a Senate
subcommittee.
Jim Koch, who says his company is significantly disadvantaged by
the high U.S. tax rate, told a Senate subcommittee that the tax
code has led to increased takeovers of American beer
makers--including many leading craft producers--by foreign
firms.
Lawmakers say the beer industry is a high-profile example of a
trend that has helped accelerate foreign takeovers of U.S.
companies in recent years. The trend should be worrisome,
particularly because of the U.S. job losses that often follow
foreign takeovers, lawmakers added.
Because of the differential between the higher U.S. corporate
rate and lower taxes offered by other countries, a dollar of pretax
earnings in the U.S. is worth 62 cents under American ownership,
but 72 cents under foreign ownership, Mr. Koch said. That has
accelerated the takeover of U.S. beer makers by foreign firms, he
said.
Sen. Rob Portman (R., Ohio) said companies aren't to blame for
taking advantage of the opportunities created by the tax math. "If
there's villain in this story it's the U.S. tax code, and frankly
it's Washington," Mr. Portman, the subcommittee's chairman, said in
his opening statement.
Foreign takeovers of U.S. companies doubled last year to $275
billion, according to data provider Dealogic. The total could reach
$400 billion this year, witnesses before the panel estimated.
Mr. Koch--whose company makes a line of beers named for Samuel
Adams, a Revolutionary Era figure--said in his testimony that he is
often approached about a takeover of his own firm by foreign
ownership.
But, he explained, "The simple answer [is], it's just not who we
are. Like Samuel Adams, our Patriot namesake, we were born in
America, have grown because of the advantages available in the
United States, and don't mind paying our taxes here in the United
States."
Still, he predicted that he would "likely be the last American
owner of the Boston Beer Company."
Lawmakers held the hearing to focus attention on the need to
overhaul the U.S. tax system, which is often criticized for its
relatively high 35% rate and worldwide reach.
Several witnesses pointed to the real-world job losses that
often follow foreign takeovers.
"The job losses that occur are significant. When the U.S.
companies are acquired...you lose jobs," said Walter Galvin, a
former executive of Missouri-based manufacturing firm Emerson. "No
one likes that. That's what the tax code does."
A committee staff report found that after Belgium-based InBev NV
bought St. Louis-based Anheuser Busch in 2008, the resulting
company reduced its U.S. head count from about 18,000 to about
13,000 in 2015. The report noted that it couldn't show all the job
losses were due to the merger, however.
The company didn't immediately respond to a request for
comment.
The report also included corporate documents that underscore the
importance of tax considerations in some recent cross-border
takeover deals.
One document concerned the 2014 merger of Burger King Worldwide
and Tim Hortons Inc., and location of the combined company's tax
address in Canada. It noted that "incremental value creation from
tax" due to the shift to Canadian rules equaled as much as $5.5
billion.
Joshua Kobza, CFO of the merged firm, Restaurant Brands
International, said that figure was a "very high-level estimate"
and didn't reflect an in-depth analysis.
Other internal documents related to recent cross-border
takeovers of several U.S. firms by Canadian-based pharmaceutical
firm Valeant Pharmaceuticals International Inc. A document
describing "Tax Benefits" of one takeover noted that increased
profits attributable to the deal would be "taxed at less than 4%."
Meanwhile, interest expense associated with the deal would "further
erode [the target's] tax base" in the U.S., the document said.
Valeant's tax rate is about 4%, Howard Schiller, a current board
member and the company's CFO until last month, testified at the
hearing.
Sen. Claire McCaskill of Missouri, the panel's top Democrat,
said Valeant's ability to reduce its tax rate so much "infuriates"
average Americans.
Write to John D. McKinnon at john.mckinnon@wsj.com