Jewellery tycoon Sir Michael Hill’s company has landed a legal punch on the nose of the tax man.
The listed jewellery giant is sparring with the Inland Revenue commissioner over a December 2008 deal.
The companies - chaired by Hill’s daughter Emma, and still substantially owned by his family - moved ‘intellectual property’, its retail and franchise systems, to a subsidiary firm over the ditch.
Australia’s tax office settled its case in 2014.
But New Zealand tax commissioner Naomi Ferguson considers the almost $300 million transfer a ‘tax avoidance arrangement’.
She’s refused to rubberstamp the deal, which involves about $35m in tax deductions.
Michael Hill Finance (NZ) Limited - 100%-owned by NZX-listed Michael Hill International - is challenging her in court over her subsequent tax assessment.
The company’s lawyers contend she’s treating it differently from other taxpayers who’ve used the same arrangement. And they say the Inland Revenue commissioner’s treatment of the transaction is “wrong in law, in that it is not a tax avoidance arrangement”.
Ferguson attempted to strike out that first challenge, known as an ‘inconsistency challenge’.
“In short,” court documents state, “the commissioner argues that a finding by the court that her decision is correct trumps any other challenge based on alleged procedural unfairness, such as inconsistency of treatment.”
Another argument pushed is there’s no legal ability to adjust an otherwise correct assessment on the grounds of inconsistency.
But High Court justice Kit Toogood dismissed Ferguson’s strikeout application - and awarded costs to Michael Hill.
Toogood says he doesn’t consider it “plain and obvious” the challenge can’t succeed.
It’s arguable there’s an “enforceable obligation” for a tax commissioner to be consistent, the judgment says - and Michael Hill might succeed in proving it has been picked on.
The November judgment says Ferguson initially suggested she might treat the Hill deal the same as other similar transactions. But, later, she refused to discuss it.
The similarity between the Hill deal and others was inadvertently disclosed to the jeweller’s legal beagles by one of Ferguson’s own staff.
Toogood says: “The commissioner has not given her reasons for taking different positions between Michael Hill and other taxpayers.”
The judgment says even if a commissioner’s decision is correct, a taxpayer can challenge it on administrative law grounds.
Last week, Michael Hill International reported an operating profit of $A43.9m ($NZ46.4m) for the first six months of its financial year - a 3.3 per cent rise.
The firm’s shares, which opened at 96c yesterday, have slid 23 per cent over the last year.
The company’s gradually become more Australian-centric since 2008.
The Otago Daily Times reported last month Michael Hill International is considering listing on the Australian stock exchange.