Big Four with possible $2 billion bill
(12 October 2009 – Australia) Australia’s Big four banks could end up with a $2 billion bill following the New Zealand Inland Revenue Departments ruling against Westpac last week.
Westpac was the latest to fall victim to a ruling and has been ordered to pay $NZ961 million ($A795 million) to the New Zealand Inland Revenue.
This follows a ruling in the High Court of New Zealand in July where Bank of New Zealand, a subsidiary of NAB, was ordered to pay $NZ416 million.
Australia’s Big Four, each with a wholly-owned subsidiary in New Zealand will feel the cost with the bill to be paid from the capital positions of their Kiwi banks.
The final bill for all four banks could reach up to $1.9billion if the Inland Revenue Department is successful in recovering all of the amounts challenged.
If they all lose the continuing inquiries the final cost will be a combination of the final judgement, plus interest and other charges against the provisions that the four banks have made in their New Zealand accounts determining Australia’s final implication.
The latest case with Westpac is the largest of six challenges by foreign-owned New Zealand banks against the department’s argument that the ultimate purpose of ‘structured finance loans’ was tax avoidance.
Banks raised funds on the money market or used its reserves and lent it to a company - often using the cash to buy equity in the company to the value of that loan, on the proviso the company sold it back to the bank at a specified price at a specified time.
The transactions were considered by the banks to comply with the tax legislation at the time.
BNZ has stated that it will appeal the ruling and Westpac is reviewing the case to determine whether it will also appeal.
This follows a ruling in the High Court of New Zealand in July where Bank of New Zealand, a subsidiary of NAB, was ordered to pay $NZ416 million.
Australia’s Big Four, each with a wholly-owned subsidiary in New Zealand will feel the cost with the bill to be paid from the capital positions of their Kiwi banks.
The final bill for all four banks could reach up to $1.9billion if the Inland Revenue Department is successful in recovering all of the amounts challenged.
If they all lose the continuing inquiries the final cost will be a combination of the final judgement, plus interest and other charges against the provisions that the four banks have made in their New Zealand accounts determining Australia’s final implication.
The latest case with Westpac is the largest of six challenges by foreign-owned New Zealand banks against the department’s argument that the ultimate purpose of ‘structured finance loans’ was tax avoidance.
Banks raised funds on the money market or used its reserves and lent it to a company - often using the cash to buy equity in the company to the value of that loan, on the proviso the company sold it back to the bank at a specified price at a specified time.
The transactions were considered by the banks to comply with the tax legislation at the time.
BNZ has stated that it will appeal the ruling and Westpac is reviewing the case to determine whether it will also appeal.
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