Alesco wins right to challenge tax case in Supreme Court

Tuesday 9th July 2013

The Supreme Court has granted Western Australia-based Alesco Corp the right to challenge a tax avoidance ruling over its use of securities with the characteristics of both equity and debt to fund a local acquisition.

The country's highest court today granted Alesco leave to appeal a March decision in the Court of Appeal which would see it face an $8.6 million bill in back taxes and penalties.

Justices John McGrath, William Young and Terence Arnold will let the kitchenware maker appeal whether the structure it used was a tax avoidance arrangement, and whether the tax department's application of shortfall penalties and its reassessments were a proper use of its powers.

The company used instruments known as optional convertible notes to fund the acquisitions, because tax deductions on the New Zealand side of the Tasman weren't countered by an offsetting tax derived from income in Australia. The Inland Revenue Department contended the hybrid securities, which let companies juggle equity and debt to provide a tax advantage, were structured purely to minimise tax.

The thrust of Alesco's appeal of a High Court judgment was that the Commissioner for Inland Revenue had originally Okayed the use of the instruments, and that there was real commercial purpose in the transactions to buy two New Zealand businesses.

The Alesco decision has wider implications, with a raft of other companies facing similar proceedings, with some $300 million in tax and penalties at stake.

Among other Australasian corporates caught up are Telstra Corp, Toll Holdings, and Ironbridge, the former owners of Mediaworks, which runs the TV3 and RadioLive networks.

The ruling comes a week after the tax department issued guidelines on what constitutes avoidance, and giving a steer to taxpayers as to what may attract attention from its investigators.

BusinessDesk.co.nz

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