Fruit of the Loom, the homespun brand that’s been making our underwear since 1851, wants you to know, America, that it’s paying its fair share of taxes.
That’s according to an unusual page that now turns up on the corporation’s website. Headlined “U.S. Tax Responsibilities Commitment,” the page states and clarifies a number of points in very large type, among them: Since 2002, “Fruit of the Loom has … paid more than $400 million in U.S. corporate income taxes.”
Of course, most brands don’t go out of their way to trumpet what they pay to the Internal Revenue Service, so why is this one doing it? Well, it’s just a guess, of course, but Fruit of the Loom is owned by Berkshire Hathaway, which is owned by Warren Buffett, who generated all the blaring headlines two weeks ago over that tax inversion stuff.
For the sake of those who didn’t feel the earthquake, a quick recap: Buffett ponied up $3 billion worth of preferred equity in a $11.4 billion deal with 3G Capital (which owns majority stake in Burger King) to buy Canadian donut chain Tim Hortons—and then move what’ll become the world’s third-largest quick-service chain up to Toronto. Once there, the new company’s earnings will be subject to a 26.5 percent tax rate, which compares very nicely to America’s 35 percent one.
In other words, many accused Buffett of sneaking Burger King out of the country to lower his tax bill.
The company denied it. (“This is not a tax-driven deal,” said BK chairman Alex Behring.) Buffett denied it. (“I just don’t know how the Canadians would feel about Tim Hortons moving to [Burger King headquarters in] Florida,” he said.) But analysts quietly chuckled, and the public poured threats onto BK’s Facebook page. (“Move to Canada to avoid paying taxes and I will never darken the door of a Burger King again,” threatened one man from Arkansas.) U.S. Senator Sherrod Brown (D-Ohio) proclaimed that “consumers should turn to Wendy’s Old Fashioned Hamburgers or White Castle sliders” as a patriotic move.
Tax issues aside, “the court of public opinion has incredible power,” Brand Union CEO Toby Southgate told Adweek last week. “I wonder if Burger King considered it hard enough before moving ahead.” Many have wondered the same thing.
One thing seems clear: Fruit of the Loom has apparently been considering the effects of a BK-style backlash very much and decided to pre-empt any potential PR problems.
The fear, apparently, goes beyond the brand’s current association with Buffett. In 1998, led by LBO king William F. Farley, Fruit of the Loom actually did move offshore—specifically, to the Cayman Islands, where the corporate tax rate was 0%. The maneuver didn’t work so well: The company still went bankrupt in 1999. Fruit of the Loom’s current tax page touches on this history (Buffett entered the picture in 2002) and takes pains to stress that, these days, “Fruit of the Loom, Inc., is a U.S. company for income tax reporting purposes and has been for more than a decade.”
Fair enough. But marketing experts like Peter Madden, president and CEO of branding firm AgileCat in Philadelphia, wonders whether this sort of clarification might actually do more harm than good.
“The danger for brands crafting such statements is going overboard,” he said. Most consumers, Madden suspects, aren’t thinking ill thoughts of Fruit of the Loom. “This kind of statement may damage the brand voice to a degree, inviting a negative perception that might otherwise never would have existed.”
Plus, Madden added, “it seems borderline guilt-ridden in its length.”
Martin A. Sullivan, chief economist at nonprofit accounting think tank Tax Analysts, agrees. “It seems like an overreaction on Fruit of the Loom’s part,” he said. “But it goes to show you how, in the general public’s mind, there can be guilt by association.”