Sharechat Logo

Michael Hill lowers value of IP transfer

Monday 26th July 2010

Text too small?

Michael Hill International has lowered the value at which it transferred its intellectual property to an Australian subsidiary, resulting in changes to the transaction's tax treatment, after concerns raised by the Australian Tax Office.

The retailer lowered the ‘sale price' by 6.8% to $274 million after the ATO gained its own valuation of the transaction and queried Michael's Hill's independent assessment. The query arose when the company sought to renew its ongoing Advance Pricing Agreement, with the tax departments in Australia and New Zealand, it said in a statement.

The ATO "raised a query with the company as to the value at which the transfer of the Michael Hill System occurred," it said. The office had requested a response from Michael Hill after receiving a report "from another valuation consultant commissioned by the ATO which had arrived at a lower value."

As a result, the company went back to the original valuer, Valuation Consulting, now a part of BNP Paribas, for comment and response. As a result, a revised report has concluded "that the original valuation should be adjusted by $20 million from $294 million to $274 million," Michael Hill said.

The main reasons were "a correction in the financial models for the allocation of franchise fees between the franchisee and the franchisor, adjustment to discount rates and foreign exchange rates used in the original valuation," it said.

The original transaction had resulted in a deferred tax asset of $52.9 million and some further reductions in income tax expense of approximately $7.4 million annually for a number of years. The revised report means the deferred tax asset recorded in 2008/09 has been reduced by $2.8 million to $50.1 million, with an increased tax expense for that year of $2.8 million and a further $800,000 tax expenses for 18 months of impact recorded in the 2010 year.

Michael Hill is to announce its results for the year ended June 30 on August 20. Shares of the company last traded on Friday at 90 cents and have gained 4% this year.

  General Finance Advertising    

Comments from our readers

No comments yet

Add your comment:
Your name:
Your email:
Not displayed to the public
Comments to Sharechat go through an approval process. Comments which are defamatory, abusive or in some way deemed inappropriate will not be approved. It is allowable to use some form of non-de-plume for your name, however we recommend real email addresses are used. Comments from free email addresses such as Gmail, Yahoo, Hotmail, etc may not be approved.

Related News:

Michael Hill increases 2013 sales 6.8 percent in challenging environment
Michael Hill International Limited
Michael Hill 9-month sales rise 8.8 percent , led by Australia, New Zealand
Michael Hill 1H earnings creep up on Australian gains, tax dispute lingers
Michael Hill says Christmas trading missed forecasts, 1H earnings to be $34M to $36M
Michael Hill lifts first-quarter revenue 14% on rising North American sales
Michael Hill prepares response to Australian Tax Office
Michael Hill FY profit up 5.8 percent , Australia slows growth
Michael Hill FY same-store sales edge up 0.3 percent
Michael Hill International