Air New Zealand faces huge Hong Kong tax bill

11.00am

Air New Zealand has been hit with a huge tax bill from the Hong Kong branch of its subsidiary New Zealand International Airlines (NZIA).

The state-controlled company could face a tax bill of up to $107 million.

A revised tax assessment by the Hong Kong Inland Revenue Department for 1989-2002 has landed NZIA with a $47 million tax bill, but the company warns a bill for a further $60 million could follow if Hong Kong's IRD re-assesses subsequent tax years.

Air NZ said it had advice it could challenge the assessment and expects the final tax due would be less than the $107 million bill.

Air New Zealand said the issue was about the appropriate application of Hong Kong tax law and there was no dispute over facts or the manner in which the tax returns were filed.

Air New Zealand said NZIA used professional advice in relation to its Hong Kong taxes and believed the tax returns had been filed correctly.

The company said because the Hong Kong IRD's assessments were made on a different basis they were unexpected and had not been provided for. But the company added any tax NZIA was required to pay could be met from its cash reserves.

NZIA's Hong Kong branch was established in 1989 to purchase and own all new aircraft for the Air New Zealand group.

But Air New Zealand's streamlining plans will eventually lead to the branch being wound down.

This will remove all potential future liabilities under the methodology adopted by the Hong Kong IRD.

Air New Zealand was unable to provide any further information on the matter.

Air New Zealand last traded at 39 cents on Friday, having traded between 36 cents and 64 cents over the past 12 months.

- NZPA