ATO drops $500m fly in Perpetual/KKR ointment

The Australian Taxation Office (ATO) has taken more of the shine off the proposed acquisition of Perpetual’s Wealth Management and Corporate Trust businesses by KKR, deeming that the entire cash proceeds will be deemed an accessible unfranked dividend.

Perpetual said it is extremely disappointed and disagrees with the ATO’s views and said that both it and KKR would be engaging to consider the potential impact of the ATO’s assessment of the transaction.

The ATO’s position means that shareholders must now contend with a tax liability in the range of $493 million to $529 million rather than just $106 million to $227 million.

“Perpetual is extremely disappointed and disagrees with the Commissioner’s views,” the Perpetual statement said. “Based on strong advice from relevant tax experts, including Senior Counsel, and following extensive Board testing and consideration, Perpetual continues to be of the view that the provisions should apply.”

“In Perpetual’s assessment of the scheme, it noted numerous previous scheme transactions that had been taken in similar manner,” the company’s statement said.

“The Scheme proposed, including the expected tax consequences, is broadly consistent with the structures proposed by two previous bidders. Each potential transaction was proposed with the support of professional advisers. Moreover, these earlier proposals and the Scheme were consistent with previous transactions involving a demerger and sale of a delisted parent company which has been accepted by the ATO.”

Perpetual’s statement said he considered it “has strong grounds to dispute this position”.

“However, to do so, Perpetual would need to withhold sufficient funds to cover the ATO’s asserted corporate tax liability amount from any shareholder proceeds under the Scheme until completion of that process, which would be protracted, would only commence once Perpetual was assessed and there would be no certainty of the outcome,” it said.