Michael Hill International has cut $20 million from the value at which it sold intellectual property to its Australian subsidiary – 19 months after the deal was done.
Adjusting the sale value from $294 million to $274 million follows an Australian Tax Office (ATO) query about the value of the transfer of Michael Hill Jeweller System, comprising almost all the group’s intellectual property, to Michael Hill Franchise Pty, on December 16 2008.
ATO queried the $294 million sale price after getting its own valuation, which was lower than the original independent valuation by UK intellectual property valuers Valuation Consulting Limited – now renamed BNP Paribas Business Assets.
Michael Hill went back to BNP, which revised its valuation and determined the original valuation should be adjusted by $20 million to $274 million.
ATO’s query arose when the jeweler applied to renew its ongoing advance pricing agreement for cross border transactions with the ATO and IRD.
The company is seeking an IRD ruling to obtain certainty on some of the New Zealand aspects of the transaction.
Michael Hill International originally expected to gain around $57 million in immediate tax benefits by selling the intellectual property to its Australian subsidiary.
However, the new sale value reduces what the company will recognize as a deferred tax asset from $52.9 million to $50.1 million.
The revised report also outlined a $2.8 million increased tax expense for the 2008/2009 year and a further $800,000 tax expenses for 18 months of impact recorded in the 2010 year.
Michael Hill said at the time of the original transaction that sale of its intellectual property followed a “progressive shift” of a substantial part of the group’s management and support functions to Australia over the past five years, including head office, manufacturing, distribution and key management functions.
Michael Hill will reveal full-year results for the year to June 20 on August 20.
Shares in the company were trading at 70 cents at midday against a year-high of 76 cents.
Mon, 26 Jul 2010