TAX NEWS - 2010

Australian Taxation Office has lost a $1.5 billion tax case

Australian Taxation Office has lost a $1.5 billion tax case against a division of News Corporation, following a judgment yesterday.

The case relates to the global restructure of News Corporation, which resulted in a $1.5bn tax benefit to News Australia Holdings. Related company News Limited is the publisher of The Australian.

The restructure involved moving News's head office from Australia to the US and the tax implications of a number of transactions in the 2004-05 financial year.

The complex reorganisation had two stages, known as the "flip" and "spin", and involved a share buy-back scheme. It resulted in a capital loss for News Australia of $1.5bn after the company disposed of its shares in another division, News Publishing.

The tax office claimed it was part of a tax avoidance scheme and the matter went before the Administrative Appeals Tribunal, which last year ruled in News's favour. The AAT ruled that the dominant purpose of the scheme was to "better achieve" News's commercial purpose, and not to obtain a tax benefit or as part of a tax avoidance scheme.

"The commissioner placed significant reliance on what was described as the circular nature of the steps constituting the scheme," the AAT said in its decision.

"The label 'circular', when applied to a scheme, injects a pejorative element.

"A good example of circularity warranting disapproval is a 'round robin' of cheques in which the illusion of the making of substantial payments of money is achieved although no money actually changes hands because the person who draws the original cheque almost immediately receives a cheque for the same amount. In reality, nothing happens.

"The present scheme, and its steps, are entirely different. The ownership of a very substantial company changes."

The tax office appealed against the decision, which went to the Full Federal Court, but three judges unanimously dismissed its case yesterday.

The tax office had argued before the court that the AAT had made errors when deciding in favour of News, but these arguments were all rejected by the judges.

The tax office was ordered to pay News's legal costs.

News Limited spokesman Greg Baxter said in a statement yesterday: "We are obviously very pleased with the outcome.

"It vindicates our position."