BNZ appeals tax case

Tuesday 11th August 2009

The Bank of New Zealand is to appeal last month's landmark tax case decision which found the bank had avoided tax totalling $416 million, and is making a $661 million provision in its accounts to guard against the possibility of an eventual loss.

The decision by Justice John Wild, in the Wellington High Court, found that six structured finance deals undertaken a decade ago, had no commercial purpose other than to create losses in New Zealand which the BNZ could offset against its local profits.

It arbitraged international tax rules which were available only to foreign-owned banks operating in New Zealand, and relied on a single binding ruling from the IRD which green-lit a similar but not identical transaction.

The BNZ is a subsidiary of National Australia Bank, while banks taking similar action against Inland Revenue Department findings against them are Westpac, ANZ National Bank, Rabobank, and ASB.

Deutsche Bank has already settled with the IRD on similar claims.

"This is a complex area of law, and given the facts of the case, we're not convinced that the decision was the right outcome," BNZ's chief executive, Andrew Thorburn.

"BNZ has decided to raise a provision of $661 million (including associated costs)" to be reflected in the bank's next published accounts.

"We believe we are taking an appropriate and conservative approach in reflecting the impact of the High Court decision in the BNZ financial accounts."

The appeal was widely expected, especially as Westpac is disputing similar transactions worth more than $900 million in a hearing under way in Auckland before Justice Rhys Harrison.

Tax experts are watching the Westpac case closely for signs that a judge from the Auckland Bench, which tries more commercial cases, will take a less sympathetic view of the IRD's approach than occurred in Wellington.

The BNZ said it would continue to hold "capital well in excess of Reserve Bank of New Zealand requirements" after the provision and would have no impact on BNZ's ability to meet its debt or equity obligations.

Total tax claimed by the IRD to be unpaid, with interest added, is worth more than $2.4 billion.

Businesswire.co.nz

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