APN reaches $36.3m tax settlement with IRD over convertible notes, other disputes

Australian publisher APN News & Media, which includes the NZ Herald in its stable, has reached a binding heads of agreement with the Inland Revenue Department to settle its alleged tax avoidance case and other disputed tax issues for $36.3 million - around half the amount that was in dispute.

The move comes ahead of its planned demerger of New Zealand-based NZME, which would have retained the New Zealand tax risk. The cost of the settlement is being shared by APN and NZME on a "near equal" basis, the company said in a statement to the ASX. The settlement amount will be funded by existing debt facilities of both APN and NZME and will be paid after the demerger.

"A protracted litigation and disputes process with the IRD would be costly and the ongoing uncertainty regarding the quantum of potential IRD claims and future liabilities could adversely impact APN and NZME management and shareholders," the company said.

The settlement allows APN and its subsidiaries to use $56 million of deferred tax assets that will be written off for accounting purposes after the demerger.

One of the tax wrangles concerned APN's High Court challenge to an IRD finding that it avoided paying tax through mandatory convertible notes in arrangements with its New Zealand subsidiary. The case was one of a string involving the use of convertible notes to finance trans-Tasman acquisitions in the 2000s, most of which have been either lost or settled before they got to court.

In an explanatory memorandum last month ahead of a shareholder vote on the NZME demerger, APN said the dispute involved tax of $64 million for the period up to Dec. 31, 2014, when the transaction was completed and the IRD was seeking to impose penalties of between 10 and 50 percent of the tax in dispute as well as the tax claimed. NZME had tax losses of $48 million to offset any tax payable, it said.

In another dispute, the IRD indicated it intended issuing a Notice of Proposed Adjustment last month relating to non-resident withholding tax and thin capitalisation rules following an audit of certain transactions to finance the acquisition of mastheads by a New Zealand branch of an APN Australian entity.

In May APN expected the NOPA would say that around $27 million was owed in respect of the branch financing arrangement and the tax losses couldn't be used to offset the non-resident withholding tax. APN also believed the IRD would seek to impose penalties in respect of the disputed taxes. The explanatory memorandum said that following the demerger associated with the NRWT would remain with APN and the risk around thin capitalisation would be spread across the relevant APN and NZME entities.

The Australian Tax Office is also auditing the New Zealand branch of the Australian APN entity in relation to the New Zealand mastheads, and both the ATO and IRD were also auditing or reviewing other matters within the APN Group, the memo said.

Under the demerger tax conduct deed, a "coordinating party" was to be nominated to deal with each tax matter with the costs incurred borne by the party primarily at risk, it said.

The demerger of NZME, which has newspaper, online, and commercial radio assets, has gained shareholder and regulatory approvals and APN has also sold its Australian regional newspaper titles to News Corp for A$36.6 million, retaining a still-profitable Australian commercial radio network and outdoor advertising business.

NZME and rival publisher Fairfax Media are in talks over creating a merged media group from their New Zealand assets.

(BusinessDesk)