Key News Summary –  In the Placer Dome case the High Court found that Barrick Gold had to pay $55m ‘landholder’ duty in its $15b takeover of the gold miner in 2006 – because it did not have non-land assets of more than 40% of its total property, because ‘legal’ goodwill was limited to factors that ‘attract custom’ and target sold its refined gold as a generic product into a spot market with no premium for any of its attributes (going concern goodwill was not the same).

See also: Tax Technical articles: Seminar Slides; Financial Review Article


 

On Wed 5.12.2018, the High Court, unanimously, allowed an appeal, by the WA Commissioner of State Revenue from a WA Court of Appeal decision, Placer Dome Inc v Comr of State Revenue [2017] WASCA 165). The High Court upheld the assessment that Placer Dome Inc (Placer) was a “listed land-holder corporation” within the meaning of Div 3b of Pt IIIBA of the Stamp Act 1921 (WA) and, as a result, Barrick Gold Corporation (Barrick) was liable to pay ad valorem duty in respect of its acquisition of Placer.

Part IIIBA of the Stamp Act ensures that the buyer, of an entity, will be subject to ad valorem duty, if the entity’s underlying value is principally derived from land. Land transfer duty will be paid on the transfer of shares, based on the value of the WA land it holds, if:

“the value of all land to which [Placer was] entitled, whether situated in Western Australia or elsewhere, [was] 60% or more of the value of all property to which it [was] entitled” (other than certain property excluded under ss(4)). – s76ATI(2)(b) of the Stamp Act.

The duty is then calculated by reference to the value of the land and chattels in Western Australia, to which that entity was entitled. In this case, the Commissioner had assessed Barrick to $54.8 million, in duty, based on a WA land valuation of $1.01 billion.

There was no dispute about the principal facts and relevant lower decisions.

  1. Placer was a substantial Canadian gold mining enterprise with land mining tenements around the world, including in Western Australia (“WA”).
  2. On 4 February 2006 Barrick Gold Corporation Inc (“Barrick”) was successful in its takeover of Placer for a price that ascribed a value to the total property of Placer of $15.3 billion. The acquisition was the largest transaction, of its kind, in the gold industry and created the world’s largest gold-mining business.
  3. There was no dispute that the value of Placer’s property, for the purposes of this provision was $12.8 billion and that, to be a land-holder (and therefore to attract the imposition of duty), the value of its land had to equal or exceed $7.68 billion (60%). The value of the non-land assets had to be, therefore: $5.12 billion.
  4. In its consolidated financial statements, pursuant to relevant accounting standards and regulatory requirements, Barrick nominated ‘fair value’ amounts to Placer’s tangible assets and allocated the residual balance, of the purchase price to “goodwill” – an amount of $6.5 billion (plainly more than the $5.12 billion, of non-land assets, required to avoid the duty).
  5. Following the acquisition, an assessment of duty was made by the Commissioner, pursuant to the provisions of the Stamp Act, requiring Placer to pay duty of just under AUD $55 million, on the basis that the value of its land in WA was $1,015,900,000 ($1.01 billion).
  6. Placer objected to the assessment, but, in April 2014, the Commissioner disallowed the objection.
  7. Placer then made an application to the WA State Administrative Tribunal (“the Tribunal”) for review of the Commissioner’s decision.
  8. In Placer Dome Inc (now an amalgamated entity named Barrick Gold Corporation) and Comr of State Revenue [2015] WASAT 141, the Tribunal accepted the Commissioner’s argument that there was no material goodwill in determining the land value and assessed duty on the acquisition by Barrick of Placer accordingly. The Tribunal found in favour of the Commissioner and the assessment was affirmed.
  9. Placer successfully appealed to the WA Court of Appeal. The appeal was allowed on the basis that the Tribunal had failed to distinguish the value of the land, from the value of Placer’s business, as a going concern. It followed that Placer had material goodwill.
  10. But the Commissioner disputed the allocation of any amount to goodwill. He argued that Placer’s only material revenue was that from the sale of (mostly) gold, sold as refined metal and there could be no ‘goodwill’.
  11. This followed, the Commissioner argued, from the undisputed evidence of Placer’s experts, that the prices of gold are set by transactions on international metal exchanges, to which the identity of the parties – whether as vendor or as purchaser- are irrelevant. There is no premium or discount on the traded price according to the reputation or capability of the miner, smelter or vendor. Gold miners (such as Placer and Barrick) are “price takers, not price makers”. In the absence of there being any price premium, the Commissioner argued there cannot be any value for an asset, other than the land used for mining the ore, that was ultimately sold into a generic market for the refined version of that ore. [This, of course, ignores the fact that there could be many ‘going concern’ skills and advantages, aside from the land itself, which would alter the profitability of the company, from sale at these generic prices.]
  12. However, the Court of Appeal did not accept those submissions, and set aside the Tribunal’s order (which had upheld the assessment). The Court’s order was to remit the matter back to the Tribunal, for reconsideration in accordance with the Court’s reasons for decision and certain specified directions as to matters of valuation.
  13. The Commissioner appealed to the High Court. In doing so, the Commissioner sought to rely on a “top-down” approach to valuing the land, which starts with the value of the entire business, assumes there is no material goodwill, or other intangible value, within Placer’s going concern business, and treats the residual as land.
  14. Placer disputed this methodology. Placer also argued that the Commissioner’s case in this Court is different to the case he mounted in the court below.

The High Court held that Barrick failed to establish that the value of all of Placer’s land, as a percentage of the value of all of Placer’s property, did not meet or exceed the 60% threshold.

  • Placer was a land rich company which had no material property comprising legal goodwill, the Court said.
  • Goodwill for legal purposes, as distinct from accounting purposes, was held to comprise those sources which generated or added value (or earnings) to a business, by attracting custom.
  • Custom remained central to the concept of legal goodwill.
  • Barrick’s contention that goodwill for legal purposes was or should be treated as synonymous with what it described as the “added value” concept of goodwill, or “going concern” value, was rejected, by a majority of the judges in the High Court (see, for instance, para 12 of the majority joint judgement of KIEFEL CJ, BELL, NETTLE AND GORDON JJ).

However, in a minority judgement, Gageler J held that the right to carry on business as a going concern, is a right also that could be property (including, but not limited to things that attract custom). Thus, any existing attribute of the business, not otherwise identified as an property, could fall within this category of non-land ‘property’. He said that the taxpayer’s case did not stand or fall on whether there was ‘legal goodwill’ so defined. However, he found against the taxpayer, on the basis that there was not sufficient evidence that the value of that kind of property cleared the necessary 40% threshold. Of particular concern was that some of, what might otherwise be ‘going concern value’ properly inures in the land, and should be included in its value.

Despite the fact that he found against the taxpayer, Gageler J’s decision leaves open some hope, that in a future case, of this type, appropriately focussed on this ‘non-land’ asset, a taxpayer could run the gauntlet of the various valuation issues and discharge its onus to avoid duty.

(Comr of State Revenue v Placer Dome Inc [2018] HCA 59, High Court, Kiefel CJ, Bell, Gageler, Nettle and Gordon JJ, 5 December 2018.)

[High Court’s website: Case P6/2018, Short Particulars, Judgement Summary; LTN 235, 5/12/18; Tax Month – December 2018]

FJM 11.1.19

CPD (comprehension) questions

  1. Was the fight about WA stamp duty?
  2. What percentage of the value of Placer’s property (of all kinds) had to be land, for the duty to be payable?
  3. What amount of the $12.8 b total property value, had to be non-land property, to avoid the duty?
  4. After complying with relevant accounting standards, which required all identified assets (particularly the land) to be valued at ‘fair value’, what amount did Barrack allocate to the ‘goodwill’ asset of the company it bought (Placer Dome)?
  5. Did the now merged Barrack/Placer run its case on this accounting split in value?
  6. After losing at Tribunal level and winning in the WA Court of Appeal, did the taxpayers win or lose in the High Court?
  7. What did the majority say ‘legal goodwill’ was?
  8. Why did the majority say Placer Dome had no ‘goodwill’ or certainly not $6.5 b (50% of the total).
  9. Did Gageler J find that the taxpayer’s case stood or fell on this limited definition of ‘goodwill’?
  10. What kind of non-land property, did Gageler J identify, as potentially saving the taxpayer?
  11. Could the taxpayer discharge its onus of satisfying Gageler J, that this kind of property cleared the necessary 40% of value, to avoid the duty?

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