12/09/2017 - 15:06

Barrick Gold has landmark win in $54m dispute

12/09/2017 - 15:06

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A Supreme Court ruling handed down this week casts doubt on how the state government has calculated stamp duty on mining company takeovers, potentially overcharging miners tens of millions of dollars over more than a decade.

A Supreme Court ruling handed down this week casts doubt on how the state government has calculated stamp duty on mining company takeovers, potentially overcharging miners tens of millions of dollars over more than a decade.

Most notably, it rejected the Commissioner of State Revenue’s long-held view that there is little, if any, goodwill in the value of mining companies.

This week’s ruling related to Barrick Gold’s 2006 takeover of Placer Dome, which at the time was the world’s largest gold deal

The commissioner spent seven years calculating how much stamp duty was payable on the Barrick transaction.

In 2013, the commissioner determined that Barrick had to pay $54.8 million in stamp duty on the basis that Placer Dome had land in Western Australia valued at just above $1 billion.

Barrick went to the State Administrative Tribunal (SAT) seeking to overturn the decision, but its appeal was dismissed.

The Court of Appeal has now granted Barrick the right to go back to the SAT and seek a new ruling, and in so doing it has concluded the methodology employed by the commissioner and accepted by the SAT was flawed.

This week’s ruling is the latest in a string of disputes concerning stamp duty assessments facing 'landholder’ companies in WA.

It comes just days after the state budget included a $169 million stamp duty windfall from a single ‘property’ transaction, with an unnamed party.

It also comes soon after ASX-listed Independence Group disclosed it had paid $52.5 million in stamp duty, based on the interim assessment of its $1.8 billion takeover of Sirius Resources in 2015.

EY Law, which represented Barrick Gold, said this week’s ruling provided more clarity.

In a client note, EY said it followed a number of decisions in the SAT that created significant uncertainty as to the basis on which the commissioner and taxpayers should approach the valuation of land, including mining tenements, and the separation of business value.

“The WA commissioner has consistently maintained there is little goodwill value in any mining business,” EY said.

“This is in direct contrast to the decision of the NT Court of Appeal in (the Alcan ruling), which held there was significant goodwill in a bauxite mining and alumina processing business for NT land rich duty purposes.”

In the Barrick case, a key question was whether the company was a listed landholder corporation.

That turned on whether the value of all the land to which it was entitled, whether situated in WA or elsewhere, was 60 per cent or more of the value of all the property to which it was entitled.

Barrick argued the value of Plutonic’s land was less than 60 per cent of the total, with the balance comprising intangible assets such as goodwill.

“On the other hand, the commissioner contended that (Placer) had no goodwill of any value, because goodwill must give rise to future revenues expected to be derived from (its) goldmining operations, and the value of those future revenues determines the value of the land from which the gold would be produced,” the Court of Appeal stated in its judgement.

The court said Barrick’s appeal was based on two fundamental propositions, and it agreed with both.

First, the SAT failed to distinguish between the value of the land held by Plutonic and the value of the business which it conducted using that land.

Second, the valuation methodology relied upon the use of gold futures prices, where available.

“The evidence clearly established that gold futures are in essence financial instruments and are not properly viewed as a reliable estimate of the future price of gold,” the Court of Appeal ruled.

The Court was told Barrick always relied upon a forecast gold price derived from an average or consensus of the forecast gold price assessed by leading gold analysts. 

The applicability of this ruling to transactions in WA will be affected by legislative amendments in 2008 (which removed the 60 per cent test) and 2014.

Nonetheless, the ruling will be relevant to the valuation of land under the existing landholder regime.

Business advisers have told Business News there are multiple transactions that have not been finally assessed because the parties involved were awaiting this week’s ruling.

 

 

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