APN wins adjournment in IRD tax avoidance challenge in High Court
Australian publisher APN News and Media, publisher of the NZ Herald, has been granted an adjournment of its High Court challenge to an Inland Revenue finding it owes tax in relation to financing arrangements with its New Zealand subsidiary, Wilson & Horton.
The case is the latest in a string involving the use of convertible notes to finance transtasman acquisitions in the 2000s, all of which until now have either been lost or settled before they got to court.
APN sought the adjournment to allow more time for its key witness, former chief financial officer Paul Myers, to consider a late dump of 554 documents subpoenaed by the IRD from ABN Amro, now part of the Royal Bank of Scotland.
Mr Myers, who is now chief financial officer at Billabong in Australia, couldn't arrive in New Zealand until March 3 due to work commitments but simply delaying the February 29 scheduled start of the trial caused problems hearing evidence from the IRD's expert witness who has to leave New Zealand by a certain date.
In a reserved decision, Justice Matthew Muir, after making several efforts to make the existing court date work, granted the adjournment with the case now expected to start in the High Court at Auckland on July 18 providing all parties are available.
APN's lawyer Lindsay McKay, who acted for Alesco in the 2011 landmark test case on convertible note tax avoidance, told the court earlier this week the APN case dated back 11 years and had significant financial implications for the plaintiffs. If the IRD is successful in proving the financing arrangement involving mandatory convertible notes was tax avoidance, it will mean Wilson & Horton has to forgo $216 million of tax deductions and pay a further $28 million in penalties, he said.
Myers is the chief witness for the plaintiff and will give evidence that the transaction's purpose related to treasury rather than tax minimisation benefits.
The Alesco judgment found that even if there was a commercial rationale for the way it financed the investment, that was not enough to get it off the tax avoidance hook.
Mandatory convertible notes and their cousin, optional convertible notes, were a widely used vehicle for transtasman acquisitions in the 2000s because they allowed companies to juggle debt and equity in their New Zealand divisions, providing a tax advantage to their parent and a loss to the New Zealand revenue base. The issue is whether they were designed to minimise tax.