The joint acquisition by Intact and Tryg of a UK multinational target entailed unwinding a sandwich structure using s. 212.1(4) and a Danish demerger transaction

An article by Carrie Smit and Tommy Friedlich and the public documents referenced by them illuminate the transactions on which CRA ruled in 2020-0875391R3.

Intact, a Canadian public company insurer, and Tryg, a Danish public company insurer dealing at arm’s length with Intact, engaged in co-ordinated transactions to acquire a U.K. target (RSA, a U.K. public company multinational) so that: Intact retained RSA’s Canadian business and certain other international businesses; Tryg acquired the RSA Scandinavian businesses; and Intact and Tryg initially jointly owned RSA’s Danish business and subsequently sold it to an arm’s length party (Alm Group). An indirect U.K. subsidiary of RSA held a Canadian subsidiary (RSA Canada), i.e., there was a sandwich structure.

RSA was acquired by a UK Bidco owned exclusively “beneath” Intact notwithstanding that over half of the funding was provided by Tryg. The Tryg portion of the funding was paid to the direct shareholder of the UK Bidco on account of the purchase price payable by Tryg for the Scandinavian companies that were transferred to it postclosing.

CRA ruled that s. 212.1(4) would not apply to the transfer of RSA Canada by its UK shareholder to Intact such that s. 212.1(1.1)(a) would not deem a dividend to be paid by RSA Canada to that shareholder. CRA accepted that, notwithstanding the funding by Tryg of more than 50% of the acquisition, Tryg did not control RSA and its subsidiaries (including the UK shareholder of RSA Canada) and dealt at arm’s length with Intact.

At the acquisition time, RSA indirectly held a “Danish Opco,” which indirectly held both “keeper” and “non-keeper” businesses, CRA gave detailed and favourable rulings on the application of the s. 15(1.5) demerger rules to a division of Danish Opco between a Demergerco 2 and Demergerco 1 (which was to be sold to Alm Group).

Neal Armstrong. Summary of Intact Financial Corporation (“Intact”) Business Acquisition Report 51-102F4, Form 51-102F3 Material Change Report, Material Document, Co-operation Agreement dated 18 November 2020, Carrie Smit and Tommy Friedlich, “Conquer and Divide: The CRA Rules on a Foreign Acquisition, Reorganization, and Demerger Transaction,” International Tax Highlights (IFA), Vol, 3, No. 2, May 2024, p. 16 and 2021 Ruling 2020-0875391R3 under Public Transactions - Mergers & Acquisitions - Cross-Border Acquisitions - Outbound – Other.