Alesco tax test case settled

File photo / Janna Dixon

Alesco, whose tax-avoidance battle was seen as a test case for disputes involving more than $300 million, has reached an out of court settlement with Inland Revenue.

Alesco's parent company, DuluxGroup, announced on the Australian stock exchange last week that it had reached a settlement with the IRD.

The terms of the settlement are confidential, the statement said.

DuluxGroup said it has a $12.7 million provision held for the case and expects the final amount to be paid will "be towards, but less" than this.

The company said it will provide more details when it releases its half year results in May 2014.

The dispute between the parties was over whether a funding structure used to buy two other companies was a tax-avoidance arrangement.

In 2003, the Australian building-products supplier used an arrangement known as "optional convertible notes" (OCNs) to advance $78 million to its New Zealand subsidiary for these purchases.

From 2003 to 2008, Alesco NZ claimed deductions for amounts treated as interest liabilities on the notes, in accordance with a determination issued by the tax commissioner. But the commissioner then denied Alesco the interest deductions and treated the funding structure as a tax-avoidance arrangement.

Alesco went to the High Court, but the IRD's position was upheld by Justice Paul Heath in 2011. Alesco then took the case to the Court of Appeal, but it was unanimously dismissed by Justices Mark O'Regan, Rhys Harrison and Douglas White, who said, "There is only one available inference: Alesco NZ adopted the OCNs solely in pursuit of the goal of tax avoidance."

University of Auckland Business School senior lecturer in tax law Mark Keating called the Court of Appeal decision a "complete slam dunk for the IRD".

Alesco was then granted leave to appeal to the Supreme Court and the case was due to be heard this month.

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.
- with BusinessDesk