JB Hi-Fi and its auditor Deloitte have been dragged into a major tax battle with the Australian Taxation Office over claims by the ATO that the value of The Good Guys brand was inflated by more than ten times its actual worth in a bid to secure millions in tax deductions.

The dispute, now before the Federal Court, centres on the value assigned to logo copyrights tied to The Good Guys acquisition, with the ATO accusing the retailer of dramatically overstating their worth following the $870 million takeover in 2016.

The retailers shares fell 2.5% today and are now trading at $69.66 as at 1.oopm.

JB Hi-Fi acquired The Good Guys in November 2016 from co-founder and executive chairman Andrew Muir along with private owners and management of the chain, which at the time operated more than 100 stores nationally.

At the heart of the fight is JB Hi-Fi’s attempt to reduce its tax bill over three financial years by claiming deductions linked to the declining value of logo copyrights acquired in the deal.

The retailer claimed the logo copyrights were worth $59.3 million. The ATO says the real value was just $4.1 million, leaving JB Hi-Fi entitled to deductions of only $425,731 instead of the $6.1 million claimed.

The ATO made its ruling late last year, with JB Hi-Fi immediately moving to challenge the decision and later notifying investors in its half-year results that it intended to fight the case in court.

The valuation at the centre of the dispute was based on advice from Deloitte, which also acts as JB Hi-Fi’s auditor.

The legal battle follows another valuation commissioned by JB Hi-Fi from EY Australia which estimated The Good Guys brand was worth around $241.3 million, including trademarks, logo copyrights and other intellectual property tied to the appliance retailer.

While the ATO accepted JB Hi-Fi was entitled to claim deductions, tax officials argued both the retailer and Deloitte had fundamentally misunderstood the distinction between trademark value and copyright value.

“It is notable to consider that reputation and consumer recognition of a logo belong to trademark rights and goodwill,” an ATO-commissioned report states.

“Copyright reflects the right to reproduce a logo and remedies if someone copies it.

A well-known logo may have a high trademark value, but not necessarily a high copyright value.”

JB Hi-Fi has defended its position in Federal Court filings, arguing it was “entitled to claim deductions for the decline in value of copyright in artistic works owned by” the company.

The retailer claims the ATO assessments are excessive because the value attributed to the logo copyright should be “greater than $4,115,245”.

“JB Hi-Fi can confirm the appeal that was lodged with the Federal Court is in relation to a technical tax matter,” a company spokeswoman said. “As the matter is currently being reviewed, no further comment will be made.”

Deloitte and the ATO declined to comment.