ADM runs into tax trouble
The US grains trader, which is seeking Australian government approval to pursue a $3.2 billion takeover of Graincorp, has lost two rounds of challenges with authorities over $US570 million ($603.6m) of claims relating to 2004, 2006 and 2007, which could rise by a further $US100 million if its tax claims for subsequent years are challenged.
The disclosure, in the group's most recent annual report, comes as the US Securities and Exchange Commission and the Department of Justice investigate ADM for possible legislative breaches.
ADM disclosed recently it had more than doubled to $US54 million the amount set aside for potential penalties for alleged breaches of Foreign Corrupt Practices legislation in the US.
ADM has yet to provide details but the large provision has sparked speculation its violations were more severe than suspected.
In Brazil, the Federal Revenue Service has challenged tax deductions relating to commodity hedging losses and related expenses. If appeals in administrative tribunals fail, ADM said it could take the matter to Brazil's federal courts.
Frequently Asked Questions about this Article…
ADM is facing challenges from Brazil's Federal Revenue Service over tax deductions for commodity hedging losses and related expenses. The dispute covers claims of about US$570 million relating to 2004, 2006 and 2007 and could rise by a further US$100 million if tax claims for later years are challenged.
The article says ADM could face tax bills running into several hundred million dollars based on the Brazilian challenges. That level of potential liability could affect the company’s reported earnings, cash flow or reserves depending on how the matter is resolved, so investors should factor the uncertainty into their assessment.
Yes. ADM disclosed that the US Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) are investigating the company for possible legislative breaches, according to its most recent annual report.
ADM said it had more than doubled the amount set aside for potential penalties related to alleged FCPA breaches to US$54 million. The company has not provided detailed public breakdowns, which has prompted speculation about the seriousness of the alleged violations.
If ADM loses administrative appeals in Brazil, the company said it could take the matter to Brazil’s federal courts. That means the dispute could progress through multiple legal stages before a final outcome is reached.
ADM is seeking Australian government approval for a US$3.2 billion takeover of GrainCorp. The company’s disclosed tax challenges and US investigations are material issues that investors and regulators may consider when evaluating ADM’s financial strength and governance during the takeover process.
The term refers to losses ADM reported from hedging commodity exposures. Brazil’s tax authority has challenged whether those hedging losses and related expenses were valid tax deductions. The dispute centers on whether the deductions were allowable under Brazilian tax rules.
Investors should monitor updates on the Brazilian tax appeals, any further tax claims for subsequent years, developments in the SEC and DOJ investigations, changes in ADM’s provisions (such as the FCPA reserve), and how these issues might influence the GrainCorp takeover process or ADM’s financial reports.
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