OPINION: Research has yet to probe the link, but your typical tax adviser probably spent much time at school smoking behind the bike sheds.
Their common traits are surely undeniable, particularly the urge to cock a snook at authority. For all headmaster's efforts to plug the tax loopholes, Master T Adviser will find a way around the rules and, smiling sweetly, tap ash on his shoes.
Naturally some executives find this hint of danger attractive. A few become drawn into the glamorous subculture of binding rulings, codenames and flash cash.
Jewellery retailer Michael Hill, for example, had its head turned by a sharp-dressed tax deal in 2008 and started staying up late in accountants' offices, drinking lukewarm latte and flicking through glossy Australian magazines.
You can see why the company was swept off its feet. At the stroke of a pen, its annual tax bill went from more than $10 million to less than $2m, all with the apparent approval of tax authorities on both sides of the Tasman.
Unfortunately for investors in Michael Hill, the dalliance may not end well.
For some time it has been clear Inland Revenue was unhappy about the Michael Hill deal and the company's latest full-year report said the amount it was disputing had reached $31m.
The Australian Tax Office is also kicking up a fuss, to the effect that the company may not be able to claim as much depreciation as it would like - an outcome which would increase its tax bill.
The question is, was it worth it?
Michael Hill has shown over many years it has the skills and the business model to deliver outstanding performance. You don't go from a single shop in Whangarei to a chain of 267 stores in four countries without knowing a thing or two about what works in jewellery retail.
The group's eponymous leader is a clear thinker who has had the ambition and courage to aim high. Hill would be the first to admit he has made mistakes - shoe retailing, for example, was a disaster, while the US expansion has been a rough ride - but the errors have helped refine the business.
The 2008 tax deal, however, was a paper-shuffling exercise that taught no lessons about how to sell trinkets. Technically, it involved the sale of intellectual property from a New Zealand subsidiary, Michael & Co, to an Australian subsidiary, Michael Hill Franchise, the IP being the "Michael Hill system of retailing".
The value attributed to this IP was $293m - more than the group's total assets in June 2008 of $205m. Its transfer from one subsidiary to another was achieved through intercompany loans, which had no effect on the group's liabilities.
The paper-shuffling produced a deferred tax asset of $53m as future Australian tax deductions were recognised. It also meant New Zealand shareholders would thereafter get no tax credits on their dividends, while Australian shareholders would get about 50 per cent tax credits.
You can see the impact on the company's cash flow statement (see chart). In the year to June 2008, it paid tax of $10m. After the tax deal was implemented in December 2008 the following year's tax paid was $7.4m. The next year it was $1.9m and by 2012 it was down to $1.3m.
That's a big drop.
Meanwhile payouts to shareholders are up substantially, from $9.4m in 2007 to $23m this year. Profits have also cranked up. Looking at operating profits it appears the tax break helped the company recover from weaker trading in 2009 and 2010.
Since 2009 the share price has appreciated considerably, from 47c in March that year to above $1.40 this month, although March 2009 was the market's crisis-hit low point and many companies' shares rocketed away thereafter.
However, the lack of imputation does make a difference.
In 2008 Michael Hill paid dividends of $3.20 a share, plus imputation credits of about $1.58, which in the hands of a 33 per cent taxpayer works out by my reckoning at about a net $3.20 a share.
In 2010 the dividend was increased to 4c a share, without imputation, which works out at a net $2.68 for our taxpayer.
It wasn't until 2012 that the net dividend per share surpassed that of 2008 for a 33 per cent taxpayer.
This is a simplified scenario but it does suggest Australian shareholders, who have continued to receive tax credits, may have benefited more from the tax deal than New Zealand shareholders.
Perhaps the Hill family took this into account when they consolidated their shareholding into an Australian entity, Durante Holdings, in 2010.
Anyway, whatever advantages have accrued so far could be undone by the IRD. Although the company is putting a brave face on the dispute, saying it is "capable of being resolved by agreement" and does not require any provisioning in its accounts, I think the 2008 IP transfer looks highly artificial and the IRD's view could well prevail in court.
Given the fragility of these tax contrivances I think they are a waste of time and energy. In the long term Michael Hill would be better off thinking about selling stuff rather than how to diddle the taxman.
It may be a thrill, but nice companies will just get into trouble if they hang out with the wrong crowd.
Tim Hunter is deputy editor of the Fairfax Business Bureau.
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