The Spotlight on Berkshire Hathaway
Berkshire Hathaway, led by the legendary Warren Buffett, is often celebrated for its exceptional returns and steady growth. While much attention is given to its financial performance and investment strategies, one aspect that rarely gets the spotlight is its tax liability. Delving into Berkshire’s tax provision (ASC 740) footnote reveals intriguing details.
Understanding Berkshire’s Effective Tax Rate
The US statutory corporate income tax rate stands at 21%. However, Berkshire Hathaway’s effective tax rate (ETR) for 2023 was slightly lower at 19.2%. This minor discrepancy, less than 2%, is explained in Berkshire’s ‘Rate Reconciliation’ within its 2023 10-K report.
Key Rate Drivers for Berkshire Hathaway
In contrast to many Fortune 500 companies, Berkshire’s rate reconciliation highlights just one significant rate driver: tax credits. Specifically, these credits are linked to alternative energy (wind-energy) and affordable housing investments. While this might seem mundane, it’s noteworthy because of what isn’t present in Berkshire’s tax provision.
What’s Missing in Berkshire’s Rate Reconciliation?
Excess Tax Benefit: Unlike many corporations, Berkshire Hathaway does not offer stock options, eliminating the complexities associated with excess tax benefits.
Foreign Rate Differential: Berkshire has minimal involvement in low-tax or high-tax foreign jurisdictions, which often play a significant role in the tax strategies of other multinational companies.
The Stability of Berkshire’s Tax Provision
Warren Buffett, known for his preference for straightforward, stable, and reliable businesses, extends this philosophy to Berkshire Hathaway’s tax provision. The absence of common rate drivers and the straightforward nature of its tax credits make Berkshire’s tax provision notably stable and dependable.
Berkshire Hathaway’s tax liability might not grab headlines, but it is a testament to the company’s straightforward and conservative approach. The minimal difference between the US statutory rate and Berkshire’s ETR, coupled with the absence of complex rate drivers, underscores the simplicity and stability that define Warren Buffett’s investment strategy.
Boring? Perhaps. But in the world of corporate tax, boring often means dependable and predictable, which are highly valued attributes for investors and stakeholders.
