VISY has won a long-running dispute with the Tax Office to have losses incurred more than a decade ago declared legitimate.
The victory allows various companies within the Visy group to claim deductions totalling $75 million between 2000 and 2004.
It is one of a series of cases between the Tax Office and Visy's owners, the Pratt family. This case centred around Visy's decision to purchase American company Southcorp in 2001, and whether it was done with the intention of making a profit or if Visy knew it was paying too much.
Justice John Middleton of the Federal Court in Melbourne yesterday decided in favour of Visy. His decision was based on evidence from Pratt Group executives, including finance director Vincent O'Halloran, chief executive of Pratt Industries (US) Gary Bentley Byrd, and Raphael Geminder, who is the late Richard Pratt's son-in-law and a member of the Pratt family advisory board.
Justice Middleton believed the executives were surprised by a re-evaluation of Southcorp's subsidiaries part-way through the purchase process.
This meant the subsidiaries were suddenly worth between $220 million and $288 million, rather than between $362 million and $514 million.
"Hindsight cannot be used to second-guess commercial judgments made over 10 years ago," Justice Middleton found, after the Tax Office submitted a report written in 2011 in support of its argument.
Visy purchased Southcorp in 2001. At the time, Visy only made cardboard packaging but wanted to own factories that made cans and plastic bottles. This would allow it to compete with rival Amcor, which already owned can and bottle factories and offered customers a "one-stop" packaging shop.
However, Southcorp owned several factories producing things that Visy knew it would not need, such as film, textiles and steel drums. Visy agreed to purchase the whole Southcorp business with the intention of selling the businesses it did not want.
Justice Middleton found the businesses that were intended for sale were acquired to be sold at a profit, or acquired so Visy could buy the factories it did need at a lower cost. "On either footing, any profit so captured would have been assessable as income. Accordingly, the loss that ensued is equally deductible," he found.
The Tax Commissioner had argued that Visy's management wanted to make a loss by purchasing parts of the business it did not need.
However, Justice Middleton disagreed, saying: "It is not for the commissioner to now second-guess ... the opinions and judgments I have found to have existed and been made by the controlling minds of the Visy Group."
The Tax Office commissioned a report by accountant Antony Samuel, prepared in September 2011. However, Justice Middleton said this report was of little value because Mr Samuel's conclusions "represent a hypothetical financial analysis undertaken years after the event by a third party".
The Tax Office said it was considering the implications of the case. Costs will be decided at a later date.