James Hardie To Quit The Netherlands For The Emerald Isle

by Jason Gorringe, Tax-News.com, London

29 June 2009

James Hardie, the biggest seller of home siding in the US, has announced that its directors have determined to seek shareholder approval for a two-stage plan to transform James Hardie into a Societas Europaea (SE), a relatively new form of European corporation (Stage 1), and then move its corporate domicile from the Netherlands to Ireland (Stage 2).

The company has been reviewing its corporate domicile for some time and resolving this issue is an important priority it says. James Hardie Chairman, Michael Hammes, set out the primary factors that have been driving the review in a statement. Major factors in the company's decision, he explained, included:

  • The need for key senior managers with global responsibilities to be able to spend more time with James Hardie's operations and in its markets; and
  • The June 2008 assertion by the US Internal Revenue Service (US IRS) that James Hardie did not qualify for benefits under the tax treaty between the United States and The Netherlands (the US/Netherlands Treaty) for 2006 and 2007. While the company ultimately prevailed, the US IRS could reassert its position for subsequent time periods and, accordingly, James Hardie now considers it prudent to mitigate the risk of further disputes with the US IRS.

According to the statement, James Hardie is to transfer its intellectual property and treasury and finance operations from the Netherlands before the expiry on December 31, 2010, of the favourable tax concessions the company currently enjoys in the Netherlands under the Financial Risk Reserve regime.

Mr Hammes explained that the proposal and the transfer of the intellectual property, treasury and finance operations to Ireland (together referred to as the transaction) poses the best course of action currently and is in the best interests of James Hardie and its shareholders.

Hammes underlined the underlying factors for James Hardie’s decision to relocate to Ireland:

  • Unlike the US/Netherlands Treaty, the tax treaty between the United States and Ireland (the US/Ireland Treaty) does not contain a ‘substantial presence test’, requiring key senior managers with global responsibilities to spend a substantial portion of their time in Ireland, thereby allowing those mangers to spend more time with James Hardie's operations and in its markets;
  • It provides greater certainty for James Hardie to obtain benefits under the US/Ireland Treaty than is the case under the US/Netherlands Treaty;
  • It increases the company’s flexibility to undertake certain transactions under Irish company law, which the directors believe expands the company's future strategic options;
  • It simplifies the company's governance structure to a single board of directors;
  • It makes the company's intellectual property and treasury and finance operations eligible for a statutory tax rate that is currently lower than would be the case if these operations remained in The Netherlands after the expiry of the Financial Risk Reserve regime; and finally
  • It permits most shareholders to be eligible to receive dividends not subject to withholding tax.

The company's statement further notes that before deciding to recommend the proposal to shareholders, James Hardie’s directors, key senior managers and professional advisers explored a range of alternatives, including remaining in the Netherlands or moving the parent company to the US, Australia or elsewhere in Europe.

“The directors determined not to pursue a move to the US or Australia due to, among other reasons, potential tax consequences for shareholders, additional complexity of James Hardie's corporate structure and practical considerations due to a requirement for acceptance by shareholders holding a minimum of 95% of issued capital,” concluded Hammes.

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