Coles has paid $1 to officially become the owner of a $40 million Sydney supermarket leased to rival Woolworths after it was caught using an elaborate tax haven structure to conceal its identity as the owner.
Coles has defended its actions as a "common" industry practice, dismissing questions about the use of an offshore company to act secretly on its behalf as a "conspiracy theory".
Land title records show Coles paid $1 at the start of the present financial year to formally take ownership of the property instead of holding it at arm's length via an agent and trustee, Sino Ace Investment Pty Ltd, a company ultimately controlled by an entity registered in the British Virgin Islands.
Fairfax Media has previously revealed that Coles used a labyrinthine corporate structure to conceal its involvement, blindsiding Woolworths to become landlord of the 4282-square-metre supermarket site in Neutral Bay.
The Grosvenor Street outlet is one of Woolworths' top-performing supermarkets in the country.
In the fiercely competitive supermarket industry, buying a high-performing store from beneath a competitor's nose is known as the "black truffle" - the Holy Grail of retailing.
It is believed Woolworths was "livid" when it found out Coles was the new landlord, which grants it automatic access to Woolworths' sales data as part of the lease terms.
Coles claims the convoluted method used in the deal is commonly employed by property developers and retailers to "manage the risk of big buyers attracting a bigger than necessary acquisition premium".
"This is a sensible commercial strategy to get the best possible commercial outcome," a Coles spokesman said.
But Woolworths has struck back, claiming it is "not common practice" and Coles ultimately made a poor investment in a bid to one-up its rival.
"Coles have paid $40 million for the property - we estimate they paid 30 per cent over market value for it. We estimate they would have about a 4 per cent yield, which is at the lowish end of returns," a Woolworths spokeswoman said.
Coles also said it had been "fully transparent" with NSW revenue authorities about the transaction and paid all requisite taxes and charges. Bank cheques were given to Sino Ace Investment to pay the $2.18 million owed in stamp duty and to make settlement on the deal.
The NSW Chief Commissioner of State Revenue has confirmed that documentation relating to the sale had been reviewed and the correct amount of duty had been paid.
But in an admission that could raise concerns about Coles' due diligence processes, a spokesman now claims Coles was unaware it was dealing with a company ultimately based in the tax haven.
"Coles appointed a company incorporated in Australia to act as agent and trustee for Coles. Based on a company search it appears the BVI (British Virgin Islands) incorporated company owns all the shares in the Australian incorporated company," he said.
Documents held by the corporate watchdog show Sino Ace Investment was registered by Sydney lawyer Bernard Hang Man Chiu on December 20, 2011, one day before the Neutral Bay site was bought. The local company is wholly owned by Sino Ace Investment Ltd, an entity created the month before in the British Virgin Islands.
In March, Fairfax Media uncovered Coles' involvement in the deal through leaked board papers that also showed the group had spent $40 million on the purchase, setting a record price for a free-standing supermarket in Sydney. Woolworths was unaware Coles had become its landlord until informed by Fairfax Media.
Five days before the purchase, Coles executives staged an extensive review of its own property portfolio to see which properties might be vulnerable to a tit-for-tat response from Woolworths if it ever became aware of the deal. The analysis revealed Coles had 120 stores with a combined turnover of $3 billion that could be open to attack.
The lease for the busy Neutral Bay supermarket ends in 2014 but Woolworths confirmed it would take up an option to extend for a further 10 years. Under the terms of the lease, Coles has the right to inspect Woolworths' sales records for the outlet.
Mr Chiu did not respond to a request for comment.