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James Hardie To Appeal Australian Tax Ruling

by Mary Swire,, Hong Kong

20 September 2010

James Hardie Industries (JHI) has announced that RCI Pty Ltd (RCI), its wholly-owned Australian subsidiary, will appeal to the Full Federal Court of Australia against the decision of the Federal Court rejecting the appeal of an amended assessment by the Australian Taxation Office (ATO) for the income tax year ended March 31 1999.

The Federal Court decision was handed down on September 1 this year, and upheld the ATO’s claims that RCI owes back taxes and interest, resulting from a company international restructuring in 1998-1999. The ATO argued that two transactions were structured with the sole intent of avoiding tax.

RCI 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 shares in that subsidiary to a third subsidiary in Malta. The ATO claimed the dividend payment to be "a contrived payment for the purpose of a capital gains tax avoidance scheme."

In her ruling, Federal Court Judge 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."

JHI has said that, regardless of the appeal to the Full Federal Court, and as a result of the unfavourable decision of the Federal Court, JHI is likely to be required to record a charge in its financial accounts. Had the company been required to take this charge at June 30, 2010 (its last reporting date), it said that the charge would have been an estimated amount of USD330.4m. JHI has advised investors that it will remain in compliance with its debt covenants should a charge be taken.

JHI further confirmed that, except for quarterly payments by RCI of interest on the unpaid balance of the amended assessment (amounting to USD168.8m), no cash will be required to be exchanged between RCI and the ATO until the matter has been ultimately resolved.

The company has stated that it will provide an update on the charge at the time it announces its second quarter results for the 2011 fiscal year on November 15, 2010, but, until then, it does not intend to comment further in relation to the matter.

TAGS: capital gains tax (CGT) | compliance | tax | tax compliance | tax avoidance | corporation tax | Australia | group taxation | multinationals | construction | triangulation

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