ATO's Tax Claim Against James Hardie Upheld

by Mary Swire, Tax-News.com, Hong Kong

08 September 2010

US building materials firm, James Hardie has not yet identified whether it is to appeal a recent Federal Court tax ruling, which upheld the Australian Tax Office’s claims that the firm's wholly-owned subsidiary RCI Pty Ltd owes back taxes and interest, resulting from a company restructuring in 1998-1999.

The case relates to restructuring of James Hardie and its international subsidiaries. The Australian Tax Office argued that two transactions were structured with the sole intent of avoiding tax.

RCI, an Australian subsidiary of James Hardie, received USD318m under a tax-exempt dividend from a James Hardie US subsidiary in early 1998. Seven months later RCI then sold all of its share in the US subsidiary to a third subsidiary in Malta.

The Tax Office claimed the dividend payment to be "a contrived payment for the purpose of a capital gains tax avoidance scheme."

In her ruling, Justice Margaret Stone concluded that, "objectively viewed, those persons entered into the schemes or carried out the schemes or parts of the schemes with the dominant purpose of enabling RCI to obtain a tax benefit in connection with the schemes."

In response to the ruling, James Hardie stated that the company is likely to be required to record a charge. Had the company been required to take this charge at June 30, 2010 (its last reporting date), the charge would have been an estimated amount of USD330.4m (AUD387.7m). The company said that it will remain in compliance with its debt covenants should a charge be taken.

The company stated that it does not intend to comment further on the matter, but it is considering the decision and its position with regard to any appeal by RCI.

RCI has 21 days from the handing down of the judgment to appeal the Federal Court’s decision to the Full Federal Court.

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