Canada’s the newest tax haven

Canada’s the newest tax haven

Canada’s the newest tax haven At least that’s the opinion of one American organization concerned about corporate inversions. Should we be happy or sad about this?

The Burger King takeover of Tim Hortons is expected to close Friday. The new corporate name is Restaurant Brands International, it will trade on both the Toronto and New York stock exchanges under the symbol QSR, and be headquartered in beautiful Burlington, Ontario.

While the issue of corporate inversions isn’t a new one, Washington-based tax-reform group, American Tax Fairness (ATF), feels compelled to beat the issue to death using this fast food merger as its sacrificial lamb. In its new report, Whopper of a Tax Dodge, it suggests Burger King and its largest shareholders could save between $400 million and $1.2 billion in taxes over the next four years.

That’s a lot of Tim Bits.

To get to the high-end of the estimate Burger King’s shareholders will have to save an estimated $820 million in capital gains taxes between now and 2018. A majority of the tax savings according to ATF will accrue to 3G Capital, owners of 69% of Burger King, who’ve elected to receive partnership units in an Ontario limited partnership that’s been created for Burger King’s U.S. shareholders rather than the B.C. holding company established for owners of Tim Hortons stock and foreign owners of Burger King.

By doing so, 3G and the other top Burger King shareholders would shield themselves from capital gains taxes connected to its business activities in the U.S. According to the report, “Burger King has announced that under this structure, existing Burger King shareholders who are U.S. residents and who elect to receive partnership shares are likely to avoid U.S. capital gains tax on the transaction.” 3G chairman Alexandre Behring lives in Connecticut and would benefit from this arrangement.
So, a case can be made that 3G, majority owners of Burger King, structured the deal in such a way to avoid the tax hit.
The point they’re missing is that Burger King has been forced to structure the deal this way to avoid taxes they wouldn’t have had to pay if they acquired a fast-food chain in the U.S. It’s sending a message that U.S. corporations shouldn’t reach beyond their own borders to grow their businesses even if the acquisitions (Tim Hortons in this example) make them stronger.
Burger King isn’t the culprit here and neither is the Canadian tax system. Perhaps the ATF might want to look to its name for inspiration. Tax fairness means an acquisition anywhere whether in the U.S. or abroad when involving an exchange of shares should always be tax-free. If the U.S. tax code reflected this, perhaps we wouldn’t be having this discussion.
One thing is for certain – Canada’s no tax haven.