DSG International, owner of Dixons, and HM Revenue and Customs have arrived at a settlement over a transfer pricing dispute. The DSG’s recent GBP300m rights issue prospectus includes a note that a 'non-underlying income tax charge of GBP52.7m' is expected to be recorded in the company’s 2008/09 financial year accounts.
The dispute arose when HMRC disagreed with the extent to which Dixon's income from extended warranties had been transferred to its captive insurance company in the Isle of Man in the period between 1997 and 2005. The Special Commissioners concluded last year that DSG had set prices on its assets that ‘confers a potential advantage in relation to United Kingdom taxation on the insurance of extended warranties'.
As at the last audited balance sheet date, May 3, 2008, DSG had an asset of GBP58.8m 'income tax paid in excess of the amount due', and the settlement amount will be largely offset against this item.
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