Monday 17th February 2014
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DuluxGroup, the ASX-listed paint manufacturer, has settled a tax dispute with New Zealand's Inland Revenue Department over subsidiary Alesco NZ's use of optional convertible notes.
The terms of the settlement are confidential, though DuluxGroup expects it will be less than the $12.7 million provision in its accounts as at Sept. 30 last year, it said in a statement. The settlement comes before a three-day hearing was due to kick off tomorrow in New Zealand's highest court.
Last year, the Supreme Court granted Alesco leave to appeal a March decision in the Court of Appeal which would see Alesco face an $8.6 million bill in back taxes and penalties.
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 Qantas, Transfield, Telstra Corp, Toll Holdings, and Ironbridge, the former owners of Mediaworks, which runs the TV3 and RadioLive networks.
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