British billionaire Richard Branson yesterday lost a High Court bid to get access to more than $65 million worth of dividends from his stake in the Virgin Blue airline he founded in Australia.
The High Court ruled the money, plus interest, would continue to be held in an Australian bank while a long-running dispute between the entrepreneur and the Australian Taxation Office runs through the courts.
The ATO has been chasing two of Sir Richard’s Swiss-based companies, Cricket and Virgin Holdings, over an $84 million capital gains tax bill it claims arose from the sale of shares in the Australian budget airline before its 2003 stock market float.
Virgin Blue, of which Sir Richard is the second-biggest shareholder, was issued with notices by the tax office to withhold more than $65 million, plus interest, that it was going to pay the two Swiss entities as a dividend payment. The two companies were the vehicle for Sir Richard’s Virgin Group ownership of a 25 per cent stake in the Australian airline.
The case is an important test of the tax office’s ability to challenge complex corporate financial transactions and chase tax debts of overseas companies with investments in Australia.
Under the tax laws, when a company has control over money due to a non-resident it can be required to retain the money and pay it to the tax office for the liability incurred by the non-resident.
After Virgin Blue announced in November 2005 that it was going to pay the Swiss-based Virgin companies the dividend payment, the ATO issued a notice ordering that the money be retained to cover the capital gains tax bill.
But in a complex series of transactions two days before the dividend was due to be paid, the Swiss companies assigned the “future monies” to Bluebottle UK, a company associated with Virgin Enterprises, which co-lent the money to Barfair Ltd. The matter went to trial, with the ATO arguing that the transactions were just a ruse to avoid paying Australian tax.
In July last year, NSW Supreme Court judge Ian Gzell dismissed the ATO’s argument and found its notice was ineffective because Virgin Blue was not liable to pay the dividends when the notice was served in December 2005. But the NSW Court of Appeal later overturned the decision, ruling the money should be retained while the ATO dispute is settled.
The High Court yesterday dismissed a challenge by Sir Richard’s four overseas companies – Cricket, Virgin Holdings, Bluebottle and Barfair – to the Court of Appeal decision.
“In particular, despite the assignments, Virgin Blue remained liable to pay the declared dividend to Cricket and (Virgin) Holdings,” the High Court ruled yesterday. “Each of Cricket and Holdings was a non-resident who was said to have derived gains of a capital nature from a source in Australia.
“Virgin Blue was, therefore, obliged by the commissioner’s second notices to retain from the dividends otherwise due to be paid to Cricket and (Virgin) Holdings sufficient to pay the tax due under each assessment.”
The money will continue to be held in an Australian bank account until a new trial will be heard on the companies’ challenge to the $84 million ATO bill.
Source: The Australian
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December 6, 2007 at 1:57 am