Franchise Services braves Canadian exit tax in continuing to Delaware

Franchise Services of North America (FSNA) is merging with a private Delaware company (Adreca) in the same car rental business by continuing to Delaware, and then engaging in a triangular Delaware merger whereby the Adreca shareholder (Macquarie) receives 49.8% of its shares.

The disclosure does not make a huge deal out of the deemed disposition of FSNA's properties under s. 128.1(4)(b) or the potential withholding tax of sorts imposed under s. 219.1 (a.k.a., the emigration tax), so that it may be that no material exit tax is anticipated as a result of FSNA's substantial losses and what appears to be a relatively high paid-up capital for its shares.  The Canadian tax disclosure also repeats, without further guidance, the anti-avoidance language in s. 219.3 indicating that the emigration tax of 25% will not be reduced to the Treaty rate of 5%  if "it can reasonably be concluded that one of the main reasons that FSNA became resident in the U.S. was to reduce the emigration tax or Canadian withholding tax payable by FSNA."

Neal Armstrong.  Summary of Franchise Services of North America Circular under Cross-Border Mergers - Outbound - Continuance and Merger.