Open Text Prepared to Fight IRS in Court Over Tax Increase

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Open Text Corp.’s chief executive officer said the technology company may take the U.S. Internal Revenue Service to court to fight a proposed tax increase.

Canada’s second-largest tech company said in its fourth-quarter earnings report Wednesday that the IRS has proposed raising the company’s taxes by $280 million, plus additional penalties and interest that “may be substantial.”

“We strongly disagree and we’re going to vigorously defend our position,” CEO Mark Barrenechea said in a phone interview. “Defending the position includes options of going to court.”

The proposed tax adjustment stems from Open Text moving ownership of its intellectual property to Luxembourg in 2010, the Waterloo, Ontario-based company said in the earnings statement.

The announcement came as Open Text reported earnings excluding some items of 87 cents a share, beating an average analyst estimate of 69 cents.

Open Text has been working to build up its Internet-delivered software business to replace a slowdown in license fees, which have higher margins, Barclays Plc analyst Phillip Huang said in a July 28 note. But revenue from the fees only dropped by about 2 percent from a year earlier in the quarter, to $97.1 million.

“The upside is a result of much higher than expected license revenue,” Paul Treiber, an analyst with RBC Capital Markets, said in a note to clients. Treiber said he had predicted license revenue would be as low as $65 million.

Open Text will keep buying companies over the next year as it works toward the goal of $3 billion on acquisitions, Barrenechea said.

“We have a solid pipeline of deals, we have plenty of cash,” he said, declining to say specifically how much he planned to spend this year. “We will close multiple and meaningful transactions in fiscal ’16.”

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