Hong Kong tycoon to appeal $776m Tax Office decision

The two companies linked to Asia's richest person will appeal against court rulings ordering them to pay $776 million in unpaid tax and penalties.

By InvestSMART · 4 Oct 2013

By InvestSMART ·
4 Oct 2013

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The two companies linked to Asia's richest person will appeal against court rulings ordering them to pay $776 million in unpaid tax and penalties.

Li Ka-shing, the chairman and founder of the Hong Kong-based conglomerate Hutchison Whampoa, is worth $US31 billion, ($33 billion) according to Forbes magazine. Two of his companies - Cheung Kong Infrastructure and its subsidiary Power Assets Holdings, were recently found to owe the Commonwealth of Australia $380.2 million and $395.8 million. The dispute relates to income tax dating from 2000 to 2009.

In the Federal Court of Australia, Justice Michelle Gordon said Cheung Kong and Power Assets were in default, and the court should enter judgment for the tax commissioner against them.

She added that the companies' failure to provide an address for service of legal documents was "continuing and occasioning unnecessary delay and prejudice" to the tax commissioner. The Tax Office filed its claim in June.

The companies were also ordered to pay the ATO's costs.

Hong Kong-based Cheung Kong Infrastructure and Power Assets could not be contacted by Fairfax Media on Wednesday. But a statement to Bloomberg said the ATO's claims were "without foundation", and the companies would defend against the lawsuit.

Cheung Kong Infrastructure owns substantial assets in Australia. These include electricity distributors CitiPower and Powercor, SA Power Networks, the renewable energy power transmission business Transmission Operations Australia, and the natural gas distribution company Envestra. Its results for the six months to June show a 1 per cent increase in Australian profit, to $HK587 million ($80.6 million).

In a recent report by the broker Citi, Cheung Kong Infrastructure was named as one of five "winners" in utilities.

It identified "further upward earnings potential as CKI has the financial resources ($HK5.1 billion cash on hand and only 14 per cent net debt to equity ration by end 2011) to make acquisitions."

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Frequently Asked Questions about this Article…

What was the recent Australian tax ruling involving Cheung Kong Infrastructure and Power Assets Holdings?

A Federal Court ruling found Cheung Kong Infrastructure and its subsidiary Power Assets Holdings owe a combined A$776 million in unpaid tax and penalties (about A$380.2m and A$395.8m) relating to income tax for 2000–2009. The court entered judgment for the tax commissioner and ordered the companies to pay the ATO's costs.

Who is appealing the tax decision and what do they plan to do?

The two companies linked to Li Ka-shing — Cheung Kong Infrastructure and Power Assets Holdings — said they will appeal the court rulings. They have also told Bloomberg they consider the ATO's claims "without foundation" and intend to defend the lawsuit.

Why did the Federal Court enter judgment against the companies?

Justice Michelle Gordon said the companies were in default and had failed to provide an address for service of legal documents. That failure was described as "continuing and occasioning unnecessary delay and prejudice" to the tax commissioner, prompting the court to enter judgment.

What did the companies say publicly about the Australian Tax Office (ATO) claims?

A statement to Bloomberg from the companies said the ATO's claims were "without foundation" and that they would defend against the lawsuit. The companies could not be contacted by Fairfax Media for further comment.

Which Australian assets does Cheung Kong Infrastructure own that investors should know about?

Cheung Kong Infrastructure owns substantial Australian utilities assets including electricity distributors CitiPower and Powercor, SA Power Networks, the renewable transmission business Transmission Operations Australia, and the natural gas distributor Envestra. These holdings make the tax dispute particularly relevant to Australian investors.

Could this tax ruling affect CKI's financial position or ability to make acquisitions?

The article notes CKI reported a 1% increase in Australian profit for the six months to June (HK$587 million, about A$80.6m) and that broker Citi highlighted CKI as a utilities "winner" with HK$5.1 billion cash on hand and relatively low net debt (about 14% net debt to equity at end 2011). While the companies say they will defend the claims and appeal, investors should monitor the legal outcome for any financial implications.

Will the court order require the companies to pay the ATO's legal costs now?

Yes. The Federal Court ordered the companies to pay the Australian Tax Office's costs as part of the judgment. The companies have indicated they will appeal the rulings.

What should everyday investors in CKI or its Australian utilities watch for next?

Investors should watch for updates on the appeal and any final court decisions, official statements from Cheung Kong Infrastructure or Power Assets, and disclosures about any financial provision for the tax claim. The article highlights both the scale of the A$776 million claim and CKI's sizable Australian assets, so ongoing legal developments could be material.