Rabobank will fight IRD despite paying up

Rabobank is still planning a court challenge.

Dutch-owned rural lender Rabobank New Zealand has paid $14.4 million to the Inland Revenue Department which it believes is the amount the tax authority will seek to recover from it over its use of structured finance transactions.

However the bank still intends taking court action to challenge the IRD's amended assessment, which it is yet to receive, in order to recover the money.

The big four Australian-owned banks are facing off against the IRD over $2.32 billion in back taxes and interest related to a series of transactions employing a mechanism intended to encourage them to earn offshore income. The IRD contends, and did so successfully in the High Court against BNZ, that the banks used the mechanism solely to avoid tax.

Of two other banks the IRD has pursued over the transactions, Deutsche Bank has already settled out of court.

Rabobank, though, has until now chosen not to disclose the extent of any contingent liability it faces over its use of the transactions.

Last week, spokeswoman Denise Shaw told the Business Herald the bank, after discussions with the IRD, had made a voluntary tax payment of $14.4 million although it had not received an amended assessment.

The sum paid was "the expected core tax amount that was in dispute".

The full potential liability the bank faced, including interest and the sum already paid, was $21.1 million.

Nevertheless, Rabobank still intends disputing the IRD's amended assessment once it receives it, although a court date has not been set.

Rabobank's contingent liability is dwarfed by that of Westpac, whose challenge to the IRD wound up last week in the High Court at Auckland.

The resulting judgment is likely to take several weeks to emerge. The IRD is seeking $586 million in back taxes and a further $317 million in interest from Westpac. The court can also impose extra penalties.