The Reserve Bank has rejected submissions by Australian-owned banks operating in New Zealand for relief from new rules to guard against bank failures which will see them pay around $25 million in extra tax annually in this country.
The concerns of the Australian banks are reported in the Reserve Bank's response to submissions on the impact of new capital adequacy rules, known as Basel 3, which banks worldwide are being obliged to put in place as a buffer against future financial crises.
At stake is the treatment of financial instruments under the new regulations, requiring the nominal value of the instrument to be reduced by the potential tax and other offsets that occur at the time of conversion or write off in a bank rescue.
This so-called "tax hair-cut" could be worth around $25 million to New Zealand's Inland Revenue Department, the Reserve Bank noted in its regulatory impact statement on the effects of the Basel 3 changes, earlier this year.
The RIS says: "It is assumed that higher capital will shift income from a foreign tax jurisdiction (in practice Australia) to the New Zealand tax base generating a net benefit of about $25 million a year."