ANZ's $348m row with IRD

By BRIAN FALLOW


ANZ National Bank is facing a bill of up to $348 million in back taxes and interest if it loses an argument with the Inland Revenue Department over the treatment of some international financing deals.

Of that, $116 million including interest would be covered by an indemnity given by the National Bank's former owner, Lloyds TSB Bank, when it was sold to ANZ last year.

The disputed bill relates to "structured finance transactions" done since 2000 and taking advantage of tax laws giving favourable tax treatment for money channelled to a foreign borrower via New Zealand.

The Government plans to close this loophole.

Westpac and the Bank of New Zealand are also in dispute with the IRD over similar transactions.

ANZ told the Australian Stock Exchange yesterday it had received an indicative preliminary estimate from the IRD of a potential liability of $77 million, including interest, relating to a transaction in 2000.

The bank said that if the same treatment was applied to other transactions by ANZ and the National Bank the maximum possible liability would be $299 million - with $99 million covered by the Lloyds indemnity - or $348 million including interest.

Westpac has said it could face a bill of up to $647 million.

ANZ said it had not entered into similar transactions for some time, and many of those being reviewed had matured.

Legislative changes announced by Finance Minister Michael Cullen last week are expected to close off the use of New Zealand as a tax-efficient conduit for loans flowing from one country to another.

Present rules allow the New Zealand subsidiary of an overseas bank to borrow this money from its parent and claim an interest deduction.

But the transaction produces little or no taxable income in New Zealand.

Under legislation to be introduced in November these transactions, which flow through New Zealand only for tax reasons will not be able to be debt-funded at all and will therefore dry up.