BNZ to appeal tax avoidance case

File photo / Kenny Rodger

Bank of New Zealand has decided to appeal the tax case it lost in the High Court last month and is making a $661 million provision for the case in its accounts.

BNZ chief executive Andrew Thorburn confirmed today that the bank would appeal after indicating last month that it was likely.

"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," he said.

The tax in dispute is $416m and interest of $238m has also been applied by the Inland Revenue Department (IRD). IRD has yet to decide on potential penalties.

BNZ is among five banks facing more than $2 billion of disputed tax assessments for 22 structured finance transactions.

The case against Westpac is being heard in the Auckland's High Court, while the BNZ case, which was the first, was heard in Wellington's High Court.

The banks have so far treated the tax cases as contingent liabilities in their accounts.

BNZ said today it would raise a $661m provision in its income statement in the June 2009 year.

"We believe we are taking an appropriate and conservative approach in reflecting the impact of a High Court decision in the BNZ financial accounts," chief financial officer Ken Christie said.

"After taking this provision the bank will still hold capital in excess of Reserve Bank of New Zealand requirements. And as stated previously, the provision will have no ability on BNZ's ability to meet any debt or equity obligations," he said.

One of the banks' defences is that some of the transactions had binding rulings from IRD, which allowed interest and fees to be deductible and dividends to be exempt from tax.

The judgment against BNZ from Justice John Wild said a binding ruling expressly applied only to the transaction ruled on.

IRD argued that the "tax tail wagged the commercial dog" in the transactions BNZ entered into with foreign counter parties.

The Commissioner for Inland Revenue, Robert Russell, welcomed the BNZ ruling last month.

The six transactions by BNZ spanned eight income tax years between 1998 and 2005.

- NZPA