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6 September, 2010
Australian building materials maker James Hardie Industries lost a tax appeal case in a courtroom on 1 September that likely will inhibit the troubled company’s ability to make payments under terms of the Asbestos Injuries Compensation Fund. Under a mandatory agreement with the state government of New South Wales, Hardie must pay 35% of its annual cash flow to the fund.
A federal court judge ruled last week that James Hardie owes back taxes to the government in the amount of A$357.4 million, plus interest, for dodging taxes in 1998 when it formally moved ownership of US subsidiaries out of Australia.
The 1 September decision by a federal court judge in Australia, upholding a Taxation Office ruling from that 1998 case, means that Hardie will need a fresh infusion of money to meet its liability commitments to victims of asbestos and asbestos-related diseases, according to the Australian Manufacturing Workers Union (AMWU). Lawyers who represent victims also expressed fear that the company will completely default on immediate and future obligations.
The AMWU said prior to last week’s ruling that if James Hardie were to win the appeal, it would demand that the A$275 million cash windfall due the company go directly to the compensation fund. The AMWU said James Hardie has not made a payment into the fund in 2009-2010, and the bottoming-out of the home-building market inside the global financial crisis seriously jeopardizes the compensation fund.
The AMWU further states that victims’ claims average A$110 million per year, but that James Hardie has made sufficient profits only once in the past seven years to cover a full year’s of liability.
Last week’s case involved the company’s wholly-owned affiliate RCI Pty. using a tax avoidance scheme, as determined by the Tax Commissioner, for the purpose of the subsidiary gaining a tax benefit.
One Australian press account said last week’s verdict “cements the reputation of James Hardie’s board and management of the 1990s and early 2000s as putting more effort into minimizing liabilities than was good for the company.
“James Hardie has been mired in scandal after using legal arguments in 2004 to deny liability to pay asbestos compensation,” said the press report. “The furor over asbestos, which forced the company to resume responsibility, was prompted by a global restructure in 2001, which built on a 1998 restructure that is at the centre of the tax dispute.”