Aussie firms get set for IRD tax grab

Australian firms are making multimillion-dollar contingencies in their New Zealand subsidiary accounts in readiness for a potential tax grab by the Inland Revenue Department (IRD).

Up to $500 million could be at stake.

The IRD's pursuit through the court of 16 cases against 10 foreign companies – mainly Australian – emerged last year in action against two Toll Group firms. The IRD claims the companies tried to obtain tax deductions for their business when there was no expense.

All the firms are being scrutinised for alleged unpaid tax on redeemable or optional convertible notes (OCNs) – debt instruments issued in the late 90s and early 2000s to recapitalise Kiwi subsidiaries, repay debt or make acquisitions.

In November, Revenue Minister Peter Dunne said High Court proceedings brought by the IRD totalled about $111m, but accountancy experts have predicted as much as $500m could be clawed back by the tax department if use of money and penalties are added to the tax bill.

Four of the 10 firms involved have been revealed through preliminary court action

In its just filed June 2009 accounts Telstra New Zealand Holdings listed its potential liability to the IRD as being $31.2m on $1.46 billion of OCNs.

Toll Group had made a contingent liability of almost $12m on $435m of OCNs. But since then accounting firm PricewaterhouseCoopers revalued the firm's OCNs at $963m, more than doubling potential liability to close to $26m.

Qantas has noted the use of OCNs in its accounts and pending legal action but did not quantify any potential amount it might owe the tax department.

Qantas has said previously that it is awaiting the outcome of another case to see where it stands. That company has now been revealed as Telstra.

MediaWorks, owner of TV3 and RadioWorks, and owned largely by Australian private equity firm Ironbridge, has listed its potential tax liability at $17.6m, including use of money on OCNs it issued between 2002 and 2004.

Each of the companies claims to have taken expert legal advice and believes they worked within New Zealand law and do not believe they will be found liable.

- © Fairfax NZ News