ATO Concerns Increase Tax Liabilities for Perpetual-KKR Deal
Perpetual Faces Tax Liability Concerns in KKR Deal
In a surprising turn of events, Perpetual, a fund manager, is facing a substantial increase in tax liabilities following discussions with the Australian Taxation Office (ATO) regarding its deal with KKR. The ATO has raised concerns about the tax treatment of the transaction, leading to a revised tax liability ranging between $493 million and $529 million, a significant jump from the initial estimate of $106 million to $227 million.
The ATO’s position is based on the belief that Section 45B of the Income Tax Assessment Act 1936 applies to the scheme, potentially treating the cash proceeds from the disposal of TopCo shares as assessable unfranked dividends. This has led to a downward adjustment in the estimated cash proceeds to shareholders, with the previously communicated range of $8.38 to $9.82 per share now revised to $5.74 to $6.42 per share.
Perpetual has expressed strong disagreement with the ATO’s stance, stating that it had relied on expert tax advice and extensive board consideration in structuring the transaction. The company highlighted that its proposed scheme was consistent with earlier transactions accepted by the ATO, including similar proposals by previous bidders.
To contest the ATO’s position, Perpetual would need to withhold funds to cover the potential tax liability, a process that could be lengthy and uncertain in outcome. The company is currently engaging with KKR to evaluate the impact of the revised tax position on the transaction, with the possibility that the deal may not proceed as a result.
Despite the challenges, Perpetual remains committed to protecting shareholder value and navigating the complexities of the ATO’s ruling. If the transaction with KKR does not proceed, Perpetual reassured shareholders that they would still benefit from the financial stability and diversification provided by the group’s businesses, along with significant cost reduction opportunities aligned with the company’s simplification program.
