Jewellery chain Michael Hill International says it has reached a settlement with the Australian Tax Office over a 2008 transfer of intellectual property.

Michael Hill International, the jewellery chain that bears the name of its founder, has reached a $6 million settlement with the Australian Tax Office (ATO) over the 2008 transfer of intellectual property to an Australian subsidiary.

The ATO had questioned the value the retailer had attributed to the intellectual property, on which it determined the level of its tax deductions.

Brisbane-based Michael Hill had put a $NZ274 million ($A259.36 million) value on the intellectual property, generating a deferred tax asset of $NZ50.2 million. The ATO said “significantly lower” deductions were available, based on its own valuation.

The company’s own valuation was based on the assumed levels of franchise fee income generated within the group by licensing its intellectual property to its retail subsidiaries in Australia and New Zealand, it said.

The settlement “is a satisfactory and pragmatic outcome”, chairman Michael Hill said in a statement on Tuesday.

“It confirms and leaves in place the company’s original valuation and also leaves in place the availability of the deferred tax asset of $NZ50,197,000.”

The tax issues arose from the company’s decision in 2008 to move more of its business to Australia, including its head office, in a transaction where Australian subsidiary, Michael Hill Franchise Pty, bought Michael Hill Jeweller System for $NZ293 million.

At the time, profits were being squeezed by tight retail margins and it was looking for ways to improve its performance.

Talks with the Inland Revenue Department on the same issue are ongoing, it said.