Fairfax Calls Off INL Leaseback Deal After Pressure From NZ Govt

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

28 May 2003

Australian newspaper group John Fairfax Holdings called off its plan to lease back New Zealand firm INL's newspaper and magazine assets as a tax saving device in the wake of continued criticism from NZ Finance Minister Michael Cullen, who is intent on preventing such procedures.

Under the deal, Fairfax would have bought the newspaper titles from INL before selling them on and leasing them back through a third party financing deal, a process which would have reduced Fairfax's tax bill. Under a standard loan arrangement only the interest is deductible, whereas a firm can deduct the whole of a lease payment for taxation purposes.

Instead, Fairfax will now finance the $1.19 billion deal using senior debt of A$702 million "for the whole of the debt component of the transaction, rather than partial masthead financing," according to the New Zealand Herald.

Commenting on the decision, Fairfax chief executive Fred Hilmer told the Herald: "While our original masthead financing proposals were properly structured within existing New Zealand tax law and precedents, we elected not to proceed given the Government's policy intentions."

Meanwhile, Finance Minister Michael Cullen, whilst apparently praising Fairfax's decision to pay the New Zealand Treasury some extra revenue, insisted that the government intends to go ahead with fresh legislation that would block any future attempts at similar tax-efficient deals.

However, a recent comment by Cullen infers that the new law may have a retroactive element: "I want to make it clear, however, that it will capture existing arrangements as it will apply to any payments made or expenses incurred from the application date specified in the new law."

If this is the case, then it has been suggested that a masthead financing deal undertaken two years ago when Australain firm APN News & Media bought Horton and Wilson in 2001 could also be affected. Under this arrangement, which runs until 2008, the company that underwrote APN's financing, Dublin based Independent News and Media, would be the party who picks up the tax bill.

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