KEY POINTS:
The four main banks now appear to be paying tax at roughly the same rate as other businesses after their ability to minimise their tax bills through overseas loan transactions was curtailed last year.
Australian-owned ANZ/National, Westpac and BNZ recently released their September year results and ASB put
out its June year result in August. Between them, the four banks account for 90 per cent of the $254 billion in banking sector assets.
Their results showed that while their combined full-year pre-tax profit rose by 16.4 per cent to $3.9 billion, in line with growth in the overall sector, their combined tax bill rose by 32 per cent or $306 million to $1.26 billion.
Their combined effective tax rate at 32.3 cents in the dollar was just a shade under the headline corporate rate of 33 cents and well up on the 28.4 cent effective rate they paid the previous year.
"They're basically paying their full whack of 33 per cent," said Andrew Dinsdale, chairman of KPMG's banking group.
That will be of some comfort to those who two years ago were incensed to learn through Reserve Bank figures that despite claiming to be paying tax at close to the corporate rate, four of the five main banks at the time were paying less than 10c in the dollar.
The increase in effective tax rate across the big four over last year was driven by higher effective rates paid by Westpac and BNZ. When commenting on their annual results, both banks said their higher rate of tax resulted from "structured finance" deals finally running out last year.
The Government moved to end the deals after it was revealed in 2003 that the banks were using them to minimise their tax bill.
The banks made use of "conduit" rules introduced to make New Zealand a more attractive base for international business deals.
The rules specified that if an overseas-owned company in New Zealand invested in another overseas entity, it would pay only 15 per cent withholding tax on the distribution of any profits or dividends from the transaction. The rules were especially advantageous to the banks, as being "thinly capitalised", with debt of up to 97 per cent on their balance sheets, they could write off huge interest costs from raising debt overseas while qualifying for a reduced tax liability on the income generated by the deals.
Legislative changes that came into force on July 1 last year included thin capitalisation rules for banks.
Banks are denied interest deductions on their tax bills unless they hold a level of capital equivalent to 4 per cent of their risk-weighted New Zealand banking assets. The figure had been effectively zero previously.
