APN not liable for GST over masthead leaseback deal

APN will not be liable for goods and services tax related to the masthead sale and leaseback arrangement it established when it acquired New Zealand Herald's then owner Wilson & Horton in 2001.

Changes to GST rules outlined in the tax legislation now before Parliament mean an APN subsidiary set up to facilitate the sale of its mastheads to US investment bank JPMorgan in 2001, and subsequent lease back to the company, will not be liable for GST.

APN could potentially have been liable for $137.5 million in GST plus substantial interest costs on the transaction which was valued at $1.1 billion.

APN chief financial officer Peter Myers said the company had been discussing its leaseback arrangement with Inland Revenue for some time.

"As part of those discussions, yes we brought it to their attention, but it's just a matter of getting it clarified. The point is, business-to-business transactions should be neutral and this really shouldn't have been in the frame. We welcome the fact that it's been clarified."

PricewaterhouseCoopers tax specialist John Shewan said the changes were a correction of a technical issue. "The important point is that this change is one that's applicable to all taxpayers and all it does is simply reinforce the principle that business-to-business transactions will be GST neutral.

"I think it's important to note that this is not unusual. In fact most of the minor technical GST amendments are prompted by particular taxpayers noting a particular situation."

For an upfront payment of $515 million in 2001, JPMorgan acquired the right to lease the APN mastheads (newspaper brands) back to the enlarged group for seven years for an annual payment of $94.5 million. The company claims a tax deduction for all of that payment.

The Government headed off a move by Fairfax to establish a similar structure when it acquired Independent Newspapers in 2003 by indicating it would disallow the deals.

However, when legislating to close the loophole in 2004, it decided against applying the changes to existing deals, thereby saving 40.5 per cent APN owner Independent News & Media from a potential tax liability of about $133 million.

* APN owns nzherald.co.nz, the New Zealand Herald, Herald on Sunday, Aucklander and other papers throughout the country. It is also joint owner of The Radio Network.