Dulux Subsidiary to Challenge NZ Tax Avoidance Ruling

Wednesday, July 10th, 2013
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A Western Australia based manufacturer of building and construction products which was recently brought out by Dulux has won the right to challenge a tax avoidance ruling in New Zealand in that country’s Supreme Court.

Earlier this week, the Supreme Court granted Alesco, a maker of construction products (particularly concrete) and equipment, cabinets and window products and garage doors and openers, leave to appeal an earlier decision handed down by the Court of Appeal which according to a report on Australian Associated Press (AAP) would see it face a $NZ8.6 million ($A7.43 million) in back taxes and penalties.

That decision found that Alesco used securities with characteristics of both debt and equity referred to as optional convertible notes (OCNs) to fund two local acquisitions in such a way that the securities were used for the dominant purpose of avoiding tax and therefore contravened the anti-avoidance provisions of New Zealand Tax Law.

Under the latest ruling from Justices John McGrath, William Young and Terence Arnold , Alesco will be able to launch an appeal against this decision.

The appeal will consider whether the structure it used was indeed a tax avoidance arrangement as well as whether the tax department’s application of shortfall penalties and its reassessment of the arrangement represented a proper use of its powers.

Alesco is expected to argue the Commission for Inland Revenue had originally approved the use of OCNs and that there was real commercial value in the transaction to purchase the businesses (as opposed to merely tax minimisation).

The Alesco decision has wider implications, with a range of companies – including Telstra, Toll Holdings and Ironbridge, the former owners of MediaWorks which runs the TV3 and RadioLive networks – also facing similar proceedings.

Last week, the tax department in New Zealand issued guidelines on what constitutes tax avoidance.

Alesco was acquired by Dulux Group last October following a bitterly fought takeover battle.

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