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Tax issues raised in Australia PE case

Tax documentation covering Archer Capital's 2011 secondary sale of MYOB has been requested in an ongoing legal dispute between Archer and Sage Group.

In a continuing court case, lawyers for UK-based Sage Group are requesting that Australia’s Archer Capital, Squadron Asia Pacific (now Flag Squadron) and HarbourVest International Private Equity Partners provide documents revealing how much tax was paid when the private equity shareholders sold software company MYOB to Bain Capital in 2011 for A$1.2 billion (€700 million; $926 million), according to local media reports.

A report in The Australian said Sage is asking for “all tax returns (including tax return schedules, tax return working papers and any requests for amendments to any tax returns) lodged by them, or on their behalf, with a revenue authority of any jurisdiction since August 2011”.

The dispute goes back to 2011, when Archer launched legal action against Sage, a business software company, because it decided to pull out of talks to buy MYOB.

If the court orders the documents be provided, information about the Cayman Island structure used for the deal as well as the way in which dividends were distributed to shareholders would also be revealed, the report said.

In response, Archer’s lawyers are asking to see documents relating to Sage's proposed acquisition of MYOB, which includes email exchanges with Deutsche Bank, PwC, Rothschild and Deloitte.

The dispute goes back to 2011, when Archer launched legal action against Sage, a business software company, because it decided to pull out of talks to buy MYOB. 

In August 2011, MYOB was sold to Bain Capital in a secondary buyout for A$1.2 billion, a price that was roughly A$180 million lower than Sage’s offer, reports said. 

Archer initiated the court case in an attempt to get Sage to pay the difference. 

Sage officials said in media reports that the bid for MYOB was non-binding and no contract was signed, and they reject Archer's claims.

Australia has had other private equity-related trade disputes recently. In February, Tokyo-based Asahi Breweries launched legal action against Pacific Equity Partners and Unitas Capital, alleging that it overpaid when it acquired Independent Liquor from the firms in 2011 for NZ$1.53 (€923 million; $1.2 billion), Private Equity International reported earlier. The case is still in the courts.

This year, a case was settled involving Castle Harlan’s $212.4 million sale of Norcast Wear Solutions to Australian-listed group Bradken, a “quick flip” that happened just seven hours after buying it for $190 million from Swiss investment firm Pala. 

Bradken, along with its chief executive and chairman, was found guilty of “bid rigging” and “misleading or deceptive conduct” and was ordered to pay Pala a fine of $22.4 million, the difference between the two prices paid, PEI reported earlier. 

Private equity tax issues have been controversial in Australia since the country's tax authorities handed TPG a $475 million bill following its listing of Myer Group in 2010. TPG maintains Myer was set up as an offshore company and therefore exempt from capital gains tax on Australian assets, but the tax office disagreed. 

In 2011, TPG prevailed in court, but it remains unclear whether the tax office intends to continue to pursue the case.