Visy wins Tax Office dispute
VISY has won a long-running dispute against the Tax Office to have losses incurred more than a decade ago declared as legitimate.
VISY has won a long-running dispute against the Tax Office to have losses incurred more than a decade ago declared as 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 on Visy's decision to purchase the American company Southcorp Packaging 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 decided in favour of Visy on Friday.His decision was based on evidence from Pratt Group executives, including Vincent O'Halloran, the group finance director; Gary Bentley Byrd, the chief executive of Pratt Industries (US); and Raphael Geminder, 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, instead of between $362 million and $514 million."Hindsight cannot be used to second-guess commercial judgments made over 10 years ago," Justice Middleton said, after the Tax Office submitted a report written last year in support of its argument.Visy purchased Southcorp in January 2001. At the time, Visy made only cardboard packaging but wanted to own factories that made cans and plastic bottles. This would enable it to compete against its rival Amcor, which already owned can and bottle factories and was offering customers a "one-stop" packaging shop.But Southcorp owned several factories manufacturing products 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 either acquired to be sold at a profit, or 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 said.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 an accountant, Antony Samuel, that was prepared in September last year. This report detailed the valuations of the Southcorp business compared with the actual financial performance.But the judge 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".
Want access to our latest research and new buy ideas?
Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.Sign up for free
Join the Conversation...
There are comments posted so far.