DuluxGroup, the ASX-listed paint manufacturer, took a $15.2 million provision, including $8.9 million in cash, to settle its tax dispute with New Zealand's Inland Revenue Department over subsidiary Alesco NZ's use of optional convertible notes.
As well as the cash provision included in the paint maker's provision there was also a $6.3 million in a "reversal of provision", according to Alesco's 2014 financial statements lodged with the Companies Office. In February 2014, Dulux reached a confidential settlement with the tax collector over the use of its convertible notes several days before a hearing in the Supreme Court. At the time, Dulux said the settlement was likely to be less than the $12.7 million provision in its accounts as at Sept. 30 2013.
The company used instruments known as optional convertible notes to fund 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 IRD contended the hybrid securities, which let companies juggle equity and debt to provide a tax advantage, were structured purely to minimise tax.
In 2013, the Supreme Court granted Alesco leave to appeal an earlier decision in the Court of Appeal which would see Alesco face an $8.6 million bill in back taxes and penalties. 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 New Zealand courts decided optional convertible notes constituted tax avoidance, leading to a string of settlements with the IRD after Alesco's settlement. The Alesco decision was seen as a test case for 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,Telstra Corp, and Ironbridge, the former owners of Mediaworks, which runs the TV3 and RadioLive networks. Pernod Ricard, Toll Holdings and Transfield have settled with the IRD.