The Courier-Mail, Wednesday September 8th 1999
By Nhada Goodfellow
Kerry Packer's Consolidated Press Holdings participated in a tax avoidance scheme in relation to a failed 1989 takeover bid for a British company, the Federal Court heard yesterday.
Hundreds of million of dollars in tax deductions were originally at issue in the case but CPH said after the decision that it was not liable for any further tax payments.
The court upheld two of twelve appeals by the Commissioner of Taxation in relation to the income tax payable by three Australian-based companies, part of the Consolidated Press Group, between 1988 and 1992.
In response to the judgement, the Australian Tax Office said it was considering whether to appeal aspects of it to the High Court.
But it said the decision should "send a shiver down the spine" of anyone devising schemes to defeat the purpose of the law. The highly technical case began when three Consolidated Press Group companies objected to a tax assessment and appealed to the Federal Court.
The tax office claimed that CPH had entered into a complex reshuffle of the international companies to secure taxation deductions and also carried out a dividend stripping scheme in the early 1990s.
However, in October last year Justice Graham Hill ruled in favour of CPH in the bulk of the case, finding in favour of the tax office on an issue of thin capitalisation funding.
The Federal Court yesterday dismissed all the claims apart from two involving CPH Property Pty Ltd.
CPH Property Pty Ltd is part of the Consolidated Press Group of Companies. CPH is a holding company for the group and its ultimate shareholder is a private company owned by Mr Packer.
In delivering a summary of judgement, Justice Robert French said the two appeals on which the Commissioner succeeded concerned the financing of a failed takeover bid in 1989 by Consolidated Press Group for UK company BAT Industries Plc.
According to the judgement, the takeover was expected to result in a profit of Br Pounds one billion (Au$4 billion).
"The court has held that the financing arrangements were structured in such a way as to constitute a tax avoidance scheme," Justice French said.
"The beneficiary of the scheme was Australian Consolidated Press, now known as CPH Property Pty Ltd."
In a statement following the judgement, CPH said "Today's decision means that no further tax is payable by Consolidated Press".
CPH said the appeals upheld "deferred the deductibility of interest payments associated with the (BAT) takeover".
"The valid deduction in relation to the takeover are simply deferred to the following years," it said.
Tax Commissioner Michael Carmody welcomed the decision, saying it confirmed the strength of anti-avoidance provisions.
"Today's decision should send a shiver down the spine of those currently engaged in devising and marketing aggressive schemes whose stock in trade is to seek out technicalities that are claimed to defeat the clear purpose of the law," he said.
"The decision of the Full federal Court... together with the actions we have taken in ruling against a range of schemes will, I hope, put a check to those who may be contemplating finding ways to avoid paying their fair share of tax under the law."
A decision on a possible appeal to the High Court would be taken shortly, he said.