James Hardie’s litigation victory helps bottom line

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James Hardie’s litigation victory helps bottom line

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The Australian Taxation Office played a crucial role in the annual results of James Hardie, which were announced this week.

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The building materials company received a $396 million refund from the Australian tax authorities arising from a case that ended in victory for the taxpayer in the High Court in Canberra in February.

Unveiling its results, the company said that the case being finalised in favour of RCI, a subsidiary of James Hardie, meant that an income tax benefit of $485.2 million was recognised in the quarter and full year results.

“The income tax benefit includes amounts refunded by the ATO, the reversal of an accounting provision for the unpaid portion of the amended assessment, partially offset by income taxes payable in respect of the reversal of general interest charges previously recognised as deductible,” the company stated.

James Hardie reported net operating profit excluding asbestos, asset impairments, ASIC expenses and tax adjustments of $32.1 million, when it was $33.3 million the year before. Income tax expense for the year was $453.2 million.

“The loss in the prior year included a non-cash charge of US$345.2 million for corporate income tax expense, penalties and interest following RCI Pty Ltd’s (RCI) September 2010 loss in the Federal Court of Australia appealing against an Australian Taxation Office (ATO) amended assessment relating to fiscal year 1999,” the company said.

The ATO issued a tax assessment against James Hardie for $385 million in 2006 because it decided that the company had breached anti-avoidance rules during an internal restructuring undertaken by RCI. The company’s objections to the assessment were rejected by the ATO and RCI appealed to the Federal Court, which heard the case in 2009. RCI lost there too, and appealed to the Full Federal Court.

The question before the court was whether or not James Hardie should have included a series of transactions involving a number of overseas subsidiaries in the company’s overall restructuring which saw it move its headquarters to the US.

The Full Federal Court decided the company had not avoided tax by including these ancillary transactions. This time, the ATO decided to fight on but the High Court refused its application for special leave to appeal the Full Federal Court’s judgment and so the case ended in victory for RCI.

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