Rank Group, the holding vehicle for New Zealand's richest man Graeme Hart, has lost a tax wrangle over a $14 million Chilean tax bill.
The dispute, over a Chilean subsidiary of packaging giant Alcoa, had taken six years to wind through the United States district court in New York. The case was finally resolved last week with judge Vernon Broderick ruling Alcoa's former owners were not liable for the tax debt.
Rank acquired Alcoa in a $3.9 billion deal in 2008, and the core of the dispute was a $48m loan by the Chilean subsidiary to its British Virgin Islands parent.
After closing the takeover deal, Rank sought ways and means to restructure the arrangement and centralise the profits. According to the ruling "Rank's goal was to find a way to 'unwind' the loans without triggering a tax."
The terms of the loan were amended by Rank, with the debt substantially increasing in duration and allowing renewal. In 2010 the Chilean tax authorities, the Servicio de Impuestos Internos (SII), investigated this transaction and were unimpressed.
"As a result of the audit, the SII found the 2008 loan was a hidden distribution of profits and recharacterised the loan under the Chilean tax laws," the ruling said.
Rank settled the tax investigation in April 2011 in a deal that saw 93 per cent of interest and penalties waived, and $14m was paid to SII.
Hart's Rank Group had launched the legal action in New York in 2012 arguing the takeover deal included provisions indemnifying it from tax payments - meaning Alcoa's former owners were liable for the payment.
Judge Broderick ruled the loan was agreed at the time of Rank's takeover to be an assumed liability varying a $10m deferred tax liability.
According to Forbes rich-list rankings Hart should be able to take the ruling in stride. Since the Alcoa deal a decade ago he has doubled his net worth, and is now by some margin New Zealand's richest man with a valuation of $14b.
Requests for comment by the Herald sent to Rank Group's headquarters in Auckland went unanswered this morning.