Sovereign hit with big tax bill
Sovereign hasn’t decided whether to appeal a court ruling that has left with a tax bill of $47.5 million after losing a High Court dispute with the Inland Revenue over the tax treatment of reinsurance deals.
Friday, July 27th 2012, 7:00AM
by Niko Kloeten
Justice Robert Dobson found Sovereign had incorrectly treated refundable commissions paid by three German reinsurance companies as income in the 2000 to 2006 tax years.
It treated the repayment of the commissions, plus interest, as expenses.
However, the IRD viewed the commissions as working capital used to help finance the setting up the life insurance policies.
The tax department considered that only the interest cost on the use of the money was deductible.
A settlement shortly before the start of the trial reduced the amount of tax due from $67m to $47.5m.
Sovereign said in a statement that it was "reviewing the judgment and considering its response."
The issues relating to the tax dispute had been consistently disclosed in its financial statements since 2004, it said.
The company said it did not believe that the result would impact on its credit rating from AM Best.
Niko Kloeten can be contacted at email@example.com
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