Treasury Wine Estates: Global Wine Distribution And Making Company

Introduction to Treasury Wine Estates

Treasury Wine Estates (TWE) is the global distribution and making company for wine that has its head quarter in Melbourne, Australia. The company operates as the wine company in New Zealand, Australia, Europe, Asia and America. It is engaged in winemaking and viticulture, sale, marketing and supply of wine. Further, the company offers luxury and commercial wines. At Treasury Wine Estates, the company is focussed on continuous improvement, innovation and commercial achievement. The business of the company is driven by the leaders who are drawn from rich diversity of the industrial experience and then combine the experience with skill, talent, passion commitment. The company is subject to the Australian Income taxes and the other jurisdiction where it carries out its foreign operation (Tweglobal.com 2018).

As per the company’s annual report for the year ended 2017, it is recognized that the item included under equity are –

• Contributed equity – the contributed equity of the company includes ordinary shares and treasury shares. The ordinary shares allow the holders to take part in the dividends and winding up procedures. It further allows 1 vote to each holder either by proxy or in person at the meeting.  On the other hand, the treasury shares are the part of the shares that the entity keeps in own treasury (Abdul, Mohd and Kamardin 2016). The stock in treasury are added through buyback or repurchase from the shareholders or the situation may be that the shares were never been issued to public.
• Reserves – under the financial accounting the term reserve represent the part of the shareholder’s equity without taking into consideration the basic share capital. The reserve may include various items like capital reserve that is generally created through issuing the shares at the value exceeding the par value. However, the reserve of TWE includes the items like reserves from cash flow hedge, reserves from the share based payments and reserve with regard to the foreign currency translation.
• Retained earnings – it is the profit that is generated by the entity and not distributed to the stockholders through dividend and are kept as reserve or reinvested in business (AlTroudi and Milhem 2013). It is the cumulative income of the company since the formation of the company and is reduced by the amount of dividend decorated since that. 

Changes in equity items

Reasons for changes –

• Contributed equity – it has been reduced from $ 3,533.6 million to $v 3,528.6 million due to purchasing of own share amounting to $ 18.3 million and vesting of deferred shares amounting to $ 13.3 million.
• Reserves – reserves has been change from $ 17.1 million to $ (23.9) million expenses incurred for shares based payments amounting to $ 18.6 million, vesting of deferred shares amounting to $ (13.3) million and foreign currency translation reserve amounting to $ (1.0) million.
• Retained earnings – the amount has been increased from $ 15.1 million to $ 99.6 million due to addition of profit for the year amounting to $ 269.1 million and distribution of dividends amounted to $ (184.6) million.

Tax expensed by TWE amounted to $ 117.3 million for the year ended 2017. The applicable tax rate for the company as per Australian taxation office and Corporation act 2001 was 30% for the year under consideration (Marshall 2016).

It has been recognised that the applicable tax rate on the company is 30%. However, it does not match with the tax expenses of the company if the same rate is applied on net income of the company (Guenther 2014). The reasons of changes are various adjustments which are shown through the following table.

Reported deferred tax assets or liabilities

Deferred tax is referred as the negative (liability) or positive (asset) recorded under the balance sheet of the company with regard to the tax overpaid or underpaid owing to temporary differences (Mullinova and Simonyants 2016.). Deferred tax can be categorised as liability or assets. However, both are shown under the balance sheet of the company.  Whether it is the liability or asset will be decided based on the tax overpaid or underpaid. Looking into the company’s annual report it is identified that the amount of deferred tax assets of the company for the year ended 2017 was $ 208 million whereas the amount of deferred tax liability for the same period was $ 233.9 million. Deferred tax is calculated at the applicable rate of tax on the company for the year under consideration (Kober, Lee and 2013).

Further, the deferred tax liabilities are recognized for all the temporary differences that are taxable. On the other hand, all the deferred tax assets are recognized for all the temporary differences that are deductible. The unused losses for tax and assets under tax are carried forward to the possible extent taken into account the probability that it will be used (Laux 2013). Further, the unrecognized tax assets under income tax are reassessed at the closing of each period and identified for the amount ill the extent is probable that the amount will be used. Deferred tax liabilities or assets are offset if only there exists the enforceable right for setting off the current tax assets with the current tax liabilities and the both the current tax liabilities and assets are associated with the same taxable company and are applicable under the same authority for taxation.   

Current tax liabilities and assets are computed at the expected amount that is to be paid to or recovered from taxation authorities at the rate of tax and the substantially enacted or enacted tax rates till the date of reporting (Kallianiotis 2015). As per the annual report of the company for the year ended 2017, the amount of current tax liabilities were $ 51.1 million. However, the company did not have any current tax assets or income tax payable.

Operations of Treasury Wine Estates

While going through the cash flow statement and income statement of the company it is recognized that the taxes under both statements are not same (Piketty 2017). Tax expense as per the income statement of TWE for the year ended 2017 is $ 117.3 million whereas the income tax paid as per the statement of cash flow is $ 32 million.  The reason of difference is that the tax paid as per the statement of cash flow is the applicable tax on the operating income of the company (Jones 2017). On the contrary, the income tax expenses in the statement of income are the tax payable on the net income before tax after meeting various expenses and making adjustments.

Confusing part – analysing the tax related issues and treatments by the company; the most difficult thing I came across is that the treatment of deferred tax assets and deferred tax liabilities. Deferred tax is recognized for the temporary difference and does not take into consideration the difference where there is a probability that the temporary difference will be reversed. Here the main issue came into my mind that what are the indications that will be considered as possibility for reversal. Chances are there that the management may not be agreed upon the indication fact of reversal as there is no specified indication regarding the deferred tax treatment or reversal of that.

New insights – I have gained some new insights regarding the treatment of income tax while analysing the tax treatment of the TWE in their annual report. The very 1^st insight is that the reason of tax expenses as per the income statement being different as compared to the tax paid as per the cash flow statement. 2^nd important insight gained is that due to various calculations, adjustments and transactions in ordinary course of the business ultimate determination for tax is not certain. Moreover, these differences have the impact on the deferred tax and current tax provision of the company. 

Reference

Abdul, R., Mohd, K.N.T. and Kamardin, H., 2016. Financial Characteristics and Cancelling Treasury Shares Events. Indian Journal of Science and Technology, 8(32).

AlTroudi, W. and Milhem, M., 2013. Cash dividends, retained earnings and stock prices: Evidence from Jordan. Interdisciplinary Journal of Contemporary Research in Business, 4(12), pp.585-599.

Guenther, D.A., 2014. Measuring corporate tax avoidance: Effective tax rates and book-tax differences. Browser Download This Paper.

Jones, D., 2017. Tax and accounting income-Worlds apart?. Taxation in Australia, 52(1), p.14.

Kallianiotis, I.N., 2015. The Optimal Taxation and the Current Tax System. International Journal of Economics and Empirical Research (IJEER), 3(3), pp.151-164.

Kober, R., Lee, J. and Ng, J., 2013. GAAP, GFS and AASB 1049: perceptions of public sector stakeholders. Accounting & Finance, 53(2), pp.471-496.

Laux, R.C., 2013. The association between deferred tax assets and liabilities and future tax payments. The Accounting Review, 88(4), pp.1357-1383.

Marshall, D., 2016. Accounting: What the numbers mean. McGraw-Hill Higher Education.

Mullinova, S. and Simonyants, N., 2016. Reflection of a deferred tax liability in the credit union reporting according to IFRS (IAS) 12 “Income taxes”. Modern European Researches, (1), pp.83-88.

Piketty, T., 2017. Capital in the twenty-first century. Harvard University Press.

Tweglobal.com., 2018. Home – Treasury Wine Estates. [online] Available at: https://www.tweglobal.com/ [Accessed 26 Jan. 2018].

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