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James Hardie Wins Large Back Tax Appeal

September 2011 - Tax & Private Client. Legal Developments by Hassans.

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James Hardie Industries has successfully appealed against a huge tax bill handed out by the Australian Tax Office (ATO) in relation to a corporate restructuring which took place over a decade ago.

The case relates to RCI, a wholly-owned subsidiary of the building products manufacturer, in respect of a tax bill issued by the ATO for the income tax year ended March 31, 1999.

RCI received an amended assessment in March 2006, relating to the amount of net capital gain arising as a result of an internal corporate restructure carried out in 1998. The amended tax bill for AUD368m (USD384m) was in payment for capital gains tax, penalties and interest, however RCI objected to the amount.

On May 30, 2007 the ATO issued a Notice of Decision disallowing RCI?s objection to the amended assessment (Objection Decision). On July 11, 2007 RCI filed an application appealing the Objection Decision with the Federal Court of Australia. The Federal Court hearing took place in September 2009, and found against RCI. It was only when the company appealed to the Full Federal Court that the Judges overturned the earlier ruling and found in favour of RCI.

The ruling was also good news for the Asbestos Injuries Compensation Fund, which stands to be given 35% of the money (AUD84.8) refunded by the Australian Tax Office (ATO) if it is received before March 31, 2012.

The ATO has 28 days from the handing down of the judgment to make an application for special leave to appeal the Court?s decision to the High Court of Australia. No cash will be exchanged between the ATO and RCI until the matter has ultimately been resolved.

As a result of the favourable decision, the ATO, should it elect not to seek leave to appeal the Full Federal Court judgement to the High Court of Australia, will be obliged to refund AUD242.4m plus interest and a portion of RCI?s legal costs. This amount includes AUD184.3m representing 50% of the original assessment plus general interest charges paid by RCI on the unpaid portion of the original amended assessment.

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