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28th
April 2006
ORBITAL
- R&D SYNDICATES
PERTH,
AUSTRALIA:
Up until 1996 R&D syndication was a government sanctioned investment
program to promote private sector investment in R&D projects.
A substantial number of companies participated in over 200 R&D
syndicates with the express encouragement and formal consent from
the Industry Research and Development Board (IRDB) and the Australian
Taxation Office ("ATO"). In recent years the ATO has been
retrospectively reviewing these R&D syndicates.
In
1995 and 1996 Orbital Corporation Ltd and subsidiaries ("Orbital")
entered into joint venture R & D syndicated arrangements with
Coles Myer Ltd and subsidiaries ("CML") to undertake research
and development relating to production of vehicles using Orbital's
technology. The JV arrangements required payment of licence fees
for the use of Orbital's technology by the CML/Orbital JV. At all
stages Orbital took advice from and relied on independent experts
and advisors in relation to the JV transactions.
The
JV arrangements led to the successful technical completion of research
and development in relation to two stroke engines in 100 vehicles
(the Genesis Project) and application of Orbital's technology to
four stroke engines.
The
JV arrangements contained conditions precedent, including that CML
received satisfactory determinations from the IR&D Board, independent
valuations as to the licence fees and private tax rulings confirming
tax deductibility of licence fees that would provide CML with reductions
in tax in the vicinity of $13.0 million and $8.0 million, respectively,
in 1995/1996 and 1996/1997.
CML
proceeded with the JV arrangements on that basis.
Some
10 years after the transactions CML has advised Orbital that the
ATO has formed a preliminary opinion that some portion of the licence
fees may not be tax deductible and that the ATO may reassess CML.
CML has advised Orbital that it considers that it is entitled to
the tax deductions in respect of the licence fees self assessed
in accordance with the private tax rulings but that "should
CML ultimately receive assessments or amendments disallowing deductions
previously claimed in respect of the Orbital R&D Syndicates,
CML considers that it is entitled to claim from Orbital (Australia)
Pty Ltd and Orbital Engine Corporation Limited (together 'Orbital')
any amounts assessed and any costs pertaining thereto pursuant to
the representations, warranties, indemnities and guarantees provided
by Orbital in the Transaction Documents entered into as part of
the Orbital R&D Syndicates" and that "CML reserves
all its rights against Orbital in this regard …".
Orbital
understands that CML's position is that the private tax rulings
preclude the ATO from re-assessing CML and that CML is disputing
the ATO's threatened re-assessments. Orbital supports CML's position
that the ATO cannot deny CML deductions for the licence fees or
any portion of the licence fees.
CML
has not identified any particular representation or warranty that
Orbital is alleged to have given in relation to the JV arrangements
nor identified any particular alleged breach of any representation
or warranty by Orbital. Orbital cannot say on what basis CML has
any claim against Orbital.
In
response to CML's generalised assertion, Orbital says that no representation
or warranty was given to CML by Orbital or anyone on its behalf
that CML would be allowed tax deductions for the licence fees. Orbital
does not believe that CML has any sustainable claim against it for
the indemnity generally asserted by CML.
"We
are obviously unhappy with this process which has been triggered
by a retrospective ATO review 10 years after the event," said
Chief Executive Officer Dr. Rodney Houston "We do not believe
there is any sustainable claim against Orbital however we are cooperating
with Coles Myer in their response to the ATO."
Orbital
will provide further information as it becomes available that may
clarify the basis of any claim that CML says it has against Orbital.
Forward
Looking Statements
This
release includes forward-looking statements that involve risks and
uncertainties. These forward-looking statements are based upon management's
expectations and beliefs concerning future events. Forward-looking
statements are necessarily subject to risks, uncertainties and other
factors, many of which are outside the control of the Company, that
could cause actual results to differ materially from such statements.
Actual results and events may differ significantly from those projected
in the forward-looking statements as a result of a number of factors
including, but not limited to, those detailed from time to time
in the Company's Form 20-F filings with the US Securities and Exchange
Commission. Orbital makes no undertaking to subsequently update
or revise the forward-looking statements made in this release to
reflect events or circumstances after the date of this release.
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