Westpac loses $900m tax case - reports

Photo / Richard Robinson

Westpac has reportedly lost its $900m tax battle with Inland Revenue.

The Australian-owned bank has been in a dispute with IRD similar to the one lost by the BNZ in July.

Its shares are currently in a trading halt, pending official notification of the High Court decision at noon today.

Australian industry newsletter The Sheet is reporting this morning that the High Court has found against the bank, requiring it to pay IRD $900 million in unpaid taxes, penalty interest and legal fees.

BNZ paid the IRD $661 million after it lost its tax case to stop the interest clock ticking, although it is appealing. This was enough to significantly improve New Zealand's current account deficit.

A Westpac spokeswoman declined comment when asked by interest.co.nz about the report. Westpac is due to make a formal announcement on the ruling at midday today.

HOW IT WORKED:

The "structured finance" transactions targeted by the IRD used a mechanism originally set up by the Government to make New Zealand a more attractive base for international business deals.

The "conduit" rules said that if an overseas-owned company in NZ invested in another overseas entity, it would pay only 15 per cent withholding tax on the distribution of 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.

The return on the investment would be treated by the banks as exempt from tax because the profits were paid from the overseas company to its parent company, also overseas. Alternatively, they claimed they did not have to pay tax because of foreign-tax-credit rules.




INTEREST.CO.NZ/ NZ HERALD STAFF