New Zealand: Rort ‘cost society $335m’…
Stuff.co.nz:
Bank of New Zealand’s tax rort has cost the country more than $335 million, the High Court at Wellington has found.
BNZ has lost its court case against the Inland Revenue Department, which could cost it $654m.
The High Court said the transactions in dispute had “no commercial rationale, logic or purpose for the BNZ”.
They also imposed an economic cost on New Zealand society of $335.6m, Justice John Wild said.
BNZ said it expected to appeal against the decision, but the amount of money owed would have no material impact on its finances and would not lead to higher fees or interest rates for customers.
“If we make this payment then we can make it out of this year’s profitability,” chief executive Andrew Thorburn said.
BNZ made $785m in the year to September 2008.
BNZ was the first of the main trading banks to challenge Inland Revenue’s claims of tax avoidance by using so-called structured financial transactions, which involved loss-making loans to foreign financial institutions between 1998 and 2002.
In total the banks, including Westpac, ANZ National and ASB, have been assessed to owe more than $2 billion in unpaid taxes and interest.
However, tax specialists expect all the banks to fight Inland Revenue all the way to the Supreme Court.
Mr Thorburn said the bank had 20 days to digest the 179-page judgment and decide whether to appeal.
“At this time it is our expectation that we will do so. Clearly we are disappointed by the outcome. When those transactions were undertaken 10 years ago, we entered into them in good faith,” Mr Thorburn said.
The bank had obtained a binding ruling from Inland Revenue on several earlier similar transactions, on which it had paid tax.
Westpac began its fight to hold on to $903m in tax and interest at the end of last month in the High Court at Auckland.
Westpac said it was not appropriate to comment on the BNZ decision.
BNZ made six individual loans of $500m each for up to five years to several big overseas financial institutions at unusually low interest rates.
The loans were made under the “conduit” scheme, which encouraged foreign companies to use a New Zealand subsidiary to make international investments with an economic benefit.
In return the profits were taxed at less than half the normal company tax rate.
Inland Revenue alleged the BNZ structured the loans to make losses that could be offset against its other New Zealand income.
The BNZ argued that the transactions were legitimate under tax rules at the time and were genuine commercial deals.
But Justice Wild said the loans were not foreign investments and the BNZ had used the conduit tax scheme in a way that was not intended by Parliament.
The transactions involved lending at a substantial loss, which the BNZ accepted was a “classic indicator” of tax avoidance, he said.
“The transactions enhanced the value of the BNZ by $238.6m, but imposed an economic cost on New Zealand society of $335.6m.”
Rather than using the regime to benefit the New Zealand economy and taxpayer, “these transactions have operated at a substantial cost to both”, Justice Wild said in his judgment.
By comparison, Wellington’s new regional hospital cost $285m to build. Inland Revenue is claiming $416m in back taxes, plus $238m in interest as at June 30. Further penalties could double the amount of tax owed.
