Tax case against APN is dropped

The Inland Revenue Department has dropped a tax case against APN News & Media, owner of the New Zealand Herald.

IRD had argued an old agreement to lease back the company's mastheads and claim a tax deduction was not legal.

APN chief executive officer Brendan Hopkins said the company had spent six years fighting the case, which continued despite then Finance Minister Michael Cullen clearing the structure. However, IRD's investigations unit decided to pursue the case and it was possible the case would be going to court.

Yesterday the company received the news that the tax department was not pursuing the matter.

APN inherited the seven-year leasing arrangement, which expired last year, when it bought Herald publisher Wilson & Horton from Independent News & Media in 2002. Under the arrangement investment bank JP Morgan paid $515 million for the mastheads, and then leased them back to APN for $47 million every six months.

APN claimed a deduction from company income tax based on all of that licence payment. With an ordinary loan only the interest component would have been deductible.

As part of the sale agreement INM had agreed to pick up the cost if anything went wrong with the scheme.

"APN is pleased with the decision and the fact that the distractions of the six-year-long dispute are now behind us," Hopkins said.

In 2003, John Fairfax Holdings abandoned attempts to set up a similar scheme when Cullen said he would close the loophole allowing it. The law was subsequently changed and the schemes are no longer possible.

IRD said it was unable to comment on the APN dispute because of taxpayer confidentiality requirements.