There are strategies to manage corporate tax risk, but BBI (B&B) did not take any. They just waited to be picked off by the ATO. The head in the sand approach. Meanwhile the general interest charge clock is ticking and culpability penalties (probably 25% for lack of reasonable care or no reasonably arguable position) can be imposed.
I'm glad someone else sees the gravity of the recent decision. Since I can't find the source article, I am speculating, but from memory what transpired is that the ATO queried BBI's tax submissions from 2002 to 2007 and concluded they had underpaid to the tune of $102M. BBI appealed the decision, but on Friday the ATO, following 8 or more months of consideration, rejected the appeal. BBI has now taken the ATO to court over the issue. However, having lost to the ATO, I don't believe they can continue to state their finances on the basis of winning the eventual court decision.
The immediate effect is that $50M that was in our books as an asset together with $102M that has been expensed in previous years is now going to be classified as a corporate debt of $97M ($102M + $45M penalty interest -$50M paid to date). That is a net change of $147M. The interest rate on this $97M debt is probably in the region of 25% p.a. as projectx has speculated. So this means that $97M from the sale of DBCT and this $50M financial asset that we assumed would be used for other purposes will now be allocated to paying the ATO debt.
The positives from the decision (e.g. less profit from the DBCT sale hence less tax payable) will only be realised when the company returns to making a profit.
BBI Price at posting:
7.0¢ Sentiment: None Disclosure: Held
