French liquor company Pernod Ricard has taken a $99.1 million loss on the sale of assets by its New Zealand business while a dispute with the Inland Revenue Department sits in its accounts as a potential $87.4 million future loss.
A $105.4 million loss in the year to June 30, 2011, reported by Millstream Equities, the holding company for its wholly owned local unit, does not include contingent liabilities of $87.4 million and $58.2 million for interest deductions on convertible notes or an alternative alleged avoidance of non-residential withholding tax it disputes with the IRD.
The IRD has clamped down on financing of foreign-owned subsidiaries by hybrid debt equity securities and up to 12 companies, including MediaWorks, Qantas, Telstra and Toll Holdings, are fighting the issue.
The Millstream accounts were signed off on December 22, after Australian-based kitchenware company Alesco lost a court case on the tax issue.
IRD alleges convertible notes issued by New Zealand companies to their overseas parents are essentially interest-free loans to create tax deductions but Pernod Ricard is confident in the arrangement.
"The group has independent tax, legal opinions and evidence that confirm the mandatory convertible note transactions comply with the New Zealand law," the company says.
Auditor Deloitte noted the "uncertainty related to the outcome of a dispute with the Commissioner of Inland Revenue" in its report.
Pernod's takeover of Allied Domecq in 2005 gave it New Zealand assets, including the Montana wine business. It rationalised them with the sale of a Gisborne winery, five vineyards and 12 wine brands, including sparkling wine Lindauer, to New Zealand Breweries and partner Indevin Group for $88.3 million in 2010.
The $99.1 million loss on the disposal revealed in the Millstream accounts filed to the Companies Office exceeds the sale price and includes a $33 million goodwill impairment and a $83 million inventory writedown.
Pernod Ricard's New Zealand business had turnover of $258.5 millionin the year to June 30, 2011, downfrom $337.2 million the previousyear.
It made a gross profit of $77.3 million, down from $92.1 million the previous year before the impairments.
A tax benefit relating to lower corporate tax rates in New Zealand helped to reduce the $134.9 million loss before tax in the year to June 30, 2011.
This is the second year impairments have hit Pernod Ricard's New Zealand accounts. The previous year a $170 million impairment contributed to a bottom-line loss of $183.2 million.
The assets sold included the Lindauer, Corbans, and Saints wine brands. Under the deal Indevin, an independent winemaker, took ownership of the Gisborne winery and some vineyards.