Michael Hill International has reached a $6 million settlement with the Australian Tax Office.
The settlement follows the ATO’s queries regarding the company’s transfer of its intellectual property in its retailing system from a New Zealand subsidiary to an Australian subsidiary in 2008.
The ATO questioned the value the retailer had attributed to the intellectual property and then used to determine its level of tax deductions.
In an official statement released on April 1, company chairman Michael Hill said the $6 million settlement had “fully resolved” the issue with the ATO.
“The settlement acknowledges the company’s valuation of the IP and leaves in place the full deferred tax asset of NZ$50,197,000 and consequently … all of the associated Australian income tax deductions for future years.”
According to Hill, the IP transfer in December 2008 gave rise to various issues with the ATO and the New Zealand Inland Revenue.
“With respect to the ATO, the issues were primarily concerned with the value attributed to the IP as a whole, and the values attributed to the IP’s separate components, as these values determined the levels of income tax deductions permitted in Australia in respect of the IP.”
The amount of tax benefit in dispute with respect to the deductible portion of the IP was approximately NZ$40 million.
“The company had determined an IP value of NZ$274 million by reference to an independent valuation carried out by an internationally recognised firm…,” he said.
“The company more recently received further valuation advice from another expert valuer which supported the values of the IP and its components as adopted by the company.
“With the benefit of this advice the company has always been confident of its position as to the IP’s value.”
He said the company and the ATO both recognised that the valuation of IP is complex and would be both costly and time consuming to resolve through formal processes.
The company’s directors welcomed the “satisfactory and pragmatic” conclusion of its discussions with the ATO.
“… the directors were mindful of the uncertainties, costs and management distractions over a lengthy period which might otherwise have arisen in the absence of a settlement,” said Hill.
“It confirms and leaves in place the company’s original valuation (as revised by the company in 2010) and also leaves in place the availability of the deferred tax asset of NZ$50,197,000.”