Frucor digs in over tax dispute as other firms settle
Frucor Beverages, the Suntory Holdings-owned drinks maker whose brands include V, Just Juice and Fresh-up, is still embroiled in a dispute with the Inland Revenue over its use of convertible notes more than a decade ago, leaving it as an outlier as other firms cut their losses and settled.
The Auckland-based company still contends the tax department's position is incorrect, and is waiting on the outcome in a similar dispute, which has led to a stay on proceedings in its own case, according to notes in its 2014 financial statements lodged with the Companies Office. The tax department disputes deductions on the optional convertible notes between 2006 and 2009 that generated an income tax effect of $12.4 million, plus interest, which has mounted to $7.2 million as at the December 31, 2014 balance date. The IRD is also looking to impose penalties of $3.7 million.
In 2012, the tax department made a second assessment increasing Frucor's non-resident withholding tax (NRWT) liability amounting to $8.3 million, plus interest of $5.5 million and shortfall penalties of $4.2 million. In making the second assessment, the tax department accepted it can't win both.
"The income tax and NRWT proceedings are stayed pending the final determination in proceedings concerning a similar convertible note arrangement," the statements said. "Inland Revenue or the company may at any time before the final determination in that other proceeding apply to the High Court for the removal of the stay."
The potential tax bill, of which certain amounts are subject to the terms of a tax indemnity under the sale and purchase agreement with former owner Danone, is flagged as a contingent liability.
Frucor is one of the few companies holding out on cutting a deal with the tax department over the use of optional and mandatory convertible notes, which the IRD says were designed to minimise tax by letting companies juggle debt and equity components in their New Zealand divisions providing a tax advantage for their parent and a loss to the New Zealand revenue base.
The New Zealand courts decided they constituted tax avoidance, leading to a string of settlements with the IRD after a test case involving another Australian firm, Alesco, settled on the eve of appeal hearings in February.
The accounts show Frucor resumed dividends to its Japanese parent, paying $24.5 million in calendar 2014. Profit fell to $22.3 million from $24.5 million, on a 1.6% decline in revenue to $430.4 million.
In its 2014 annual report, Suntory said competition in Oceania was expected to intensify, and it would "further reinforce V at the Frucor Group as the leading brand in the energy drink category and take aggressive steps to expand the brand portfolio including Suntory brands and implement cost reductions in order to boost profitability."
In subsequent quarterly updates, Suntory has said Frucor has launched new products and increased marketing efforts for the OVI brand beverage.
Frucor declined to comment, citing commercial sensitivity.