ANZ in IRD tax review gunsights

By Nick Stride

Friday 13th August 2004

National Bank was heavily into the same sort of deals that have copped Westpac and Bank of New Zealand tax notices and its new owner, ANZ, is likely to be the next name on Inland Revenue's mailing list.

Analysts said National, now owned by ANZ, is a major user of the same structured finance arrangements that have landed the other two banks with assessed tax amendments or "notices of proposed adjustment."

Including interest, the amount involved so far is $170 million but could rise to more than $859 million for Westpac and BNZ alone.

According to Credit Suisse First Boston, National's structured finance portfolio contributed $75 million, or 16%, of 2003 net profit.

ANZ has said the portfolio will be "substantially reduced," and that it won't take part in New Zealand structured finance transactions without an IRD ruling.

National's seller, Lloyds TSB, has indemnified ANZ against any tax liabilities that arise from the period of the British bank's ownership.

Analysts said the IRD's review was unlikely to have much economic impact on any of the banks.

Both Goldman Sachs JB Were and Macquarie Equities said any overreaction in Westpac's share price should be regarded as a buying opportunity.

Even under the worst- case scenario, the impact would be only 33c a share, compared with a share price of $A16.62 ($18.14), Goldman Sachs said.

Both Westpac and BNZ are disputing the IRD's apparent change of heart about the tax treatment of structured finance arrangements.

Westpac said it had an IRD binding ruling for its first transaction in 1999 and had followed the principles underlying that ruling in all other transactions.

Independent tax and legal opinions received at the time had been reviewed and confirmed.

Credit Suisse pointed out the timeframe for sorting out such disputes was potentially many years if the issues ended up in court.

The IRD was arguably issuing notices primarily to prevent the statute of limitations from running out.

Many of the tax-driven financing arrangements were understood to be related to film financing and the US-New Zealand international tax treaty, the broker said.

In April BNZ was issued with notices of amended assessment for the 1998 and 1999 years amounting to $57 million and estimated its maximum primary exposure for subsequent years was $212 million, plus interest.

Westpac has received only "notices of proposed adjustment" indicating the IRD is considering issuing amended assessments.

The 12 notices cover 1999 to 2002 and involve a maximum potential liability of $113 million including interest.

The IRD is investigating other Westpac transactions which have "materially similar features."

If it came to the same conclusions, Westpac estimated the maximum potential primary liability including interest would be $647 million.

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