New Zealand jewellery chain Michael Hill International has made amends with the Australian Tax Office (ATO), following a six-year scuffle.
The company, which transferred its core operations to Australia in 2008, has today confirmed the settlement of tax issues with the ATO related to the move.
Commenting on the settlement, the group said that previously disclosed issues with the ATO have been “fully resolved by way of the execution by the ATO and the company today of a formal Deed of Settlement”.
Directors at Michael Hill said they welcome the conclusion of these discussions with the ATO and have branded the resolution as a “satisfactory and pragmatic outcome”.
The initial “issues” arose from the transfer of the intellectual property in its Michael Hill Jeweller System of retailing (IP) from a New Zealand subsidiary to an Australian subsidiary.
In December 2008, Michael Hill transferred the IP from a New Zealand subsidiary to an Australian subsidiary as part of the ongoing shift of the company’s management and support functions from New Zealand to Australia.
That transfer gave rise to various issues with the ATO and separately with 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 company had determined an IP value of NZD$274 million by reference to an independent valuation carried out by an internationally recognised firm and a deferred tax asset in respect of the deductible portion of the IP had been raised for NZD50,197,000.
More recently, the company had also received further valuation advice from another expert valuer which supported the values of the IP and its components as adopted by the company.
The ATO had also obtained its own valuation of the IP, which was the basis for the ATO considering that significantly lower deductions were available in respect of the acquisition of the IP.
However, the company and the ATO have both since recognised that the valuation of IP is complex and would be both costly and time consuming to resolve through formal processes.
Therefore, the Deed of Settlement which has been signed reflects the following basic principles:
• The ATO accepts the company’s IP valuation of NZD$274 million and its relevant components as the basis for the calculation of IP and financing cost deductions.
• The company will commit to returning franchise fee income from its non-Australian operations in the 2014 to 2018 tax years consistent with the assumptions underlying the company’s IP valuation.
• The company will pay the ATO in the current financial year an aggregate of AU$6 million in final settlement of this matter in relation to prior tax years (2008-09 through to 2012-13).
No further amounts will be payable by the Michael Hill group in relation to this matter after the settlement terms have been met.
The dispute and discussions with the New Zealand Inland Revenue also in relation to the 2008 restructure are still ongoing.
Michael Hill has said it does not believe there has been any change of circumstances such that it should change the manner in which this is currently reflected as a contingent liability in the company’s financial statements.