Frucor digs in over tax dispute with IRD
By Paul McBeth
Frucor Beverages, the Suntory Holdings-owned drinks maker whose brands include V, Just Juice and Fresh-up, is still embroiled in a dispute with the Inland Revenue Department over its use of convertible notes more than a decade ago, leaving it as an outlier with other firms cutting their losses and settling.
The Auckland-based company still contends the tax department's position is incorrect, and is waiting on the outcome in a similar dispute, which has led to a stay on proceedings in its own case.
The tax department disputes deductions on the optional convertible notes between 2006 and 2009 that generated an income tax effect of $12.4 million, plus interest which has mounted to $7.2M as at the Dec. 31, 2014 balance date.
IRD is also looking to impose penalties of $3.7M.
In 2012, the tax department made a second assessment increasing Frucor's non-resident withholding tax (NRWT) liability amounting to $8.3M, plus interest of $5.5M and shortfall penalties of $4.2M.
In making the second assessment, the tax department accepted it can't win both.
The potential tax bill, of which certain amounts are subject to the terms of a tax indemnity under the sale and purchase agreement with former owner Danone, is flagged as a contingent liability.
Frucor is one of the few companies holding out on cutting a deal with the tax department over the use of optional and mandatory convertible notes, which IRD says were designed to minimise tax by letting companies juggle debt and equity components in their New Zealand divisions providing a tax advantage for their parent and a loss to the New Zealand revenue base.
The New Zealand courts decided they constituted tax avoidance, leading to a string of settlements with the IRD after a test case involving another Australian firm, Alesco, settled on the eve of appeal hearings in February.
Frucor declined to comment, citing commercial sensitivity.