DEALTALK-Burger King main shareholder the big tax winner in Tim Hortons deal

Fri Aug 29, 2014 1:29pm EDT
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By Euan Rocha and Solarina Ho

TORONTO Aug 29 (Reuters) - Burger King's proposed $11.5 billion acquisition of Canada's Tim Hortons may offer big tax benefits to the U.S. fast food chain but the real tax winner is likely to be its controlling shareholder, 3G Capital.

The New York investment firm is not only deferring a capital gains tax hit in the U.S. because of the deal structure, but is also poised to reap a multitude of dividend tax and other benefits by moving Burger King's domicile to Canada, tax experts on both sides of the border said.

Burger King plans to buy the Canadian coffee and doughnut chain in a C$12.64 billion (C$11.5 billion) cash-and-stock deal that would create the world's third-largest fast food restaurant group. 3G will own 51 percent of the new firm.

"3G clearly wants to get both the dividends and the capital gains," said lawyer Charles Kolstad at Venable LLP in Los Angeles. "Someone, who clearly knows what he or she is doing spent a lot of time thinking about this. And it's quite clever."

In the deal, 3G has opted for partnership units instead of common shares in the new entity. That move defers the capital gains tax hit it would have faced in the United States had it taken shares.

More significantly, if 3G controls its equity via a holding company in a country that has a tax treaty with Canada, as most tax experts say is likely to be the case, the investment firm will save millions in dividend withholding taxes each year.

A spokesman for 3G declined to comment on Friday.   Continued...