Westpac faces big exposure to New Zealand tax cases
WESTPAC faces the largest potential bill of $728.28 million in the structured finance transaction tax cases being fought in New Zealand, analysts say.
BNZ, a subsidiary of National Australia Bank, lost its case in the Wellington High Court involving $NZ654 million ($A527.46 million) in unpaid tax and interest but said it is likely to appeal.
Westpac is currently involved in its trial, which commenced on June 30 in the High Court in Auckland.
Westpac said it was not appropriate to comment on the BNZ decision.
Industry observers said each case is different, in particular with respect to the issue of whether banks had binding rulings from Inland Revenue (IRD).
Australian bank analysts said the banks are treating the disputed amounts as contingent liability in their accounts and their capital should be able to withstand provisions for the cases if they go against them.
ANZ has $NZ562 million ($A453.26 million) in dispute, Commonwealth Bank of Australia, which owns ASB, has $NZ280 million ($A225.82 million) in dispute and Westpac $NZ903 million ($A728.28 million) in dispute, according to a report by UBS analysts.
The battle over the disputed tax is expected to run for years and the analysts said if the banks end up paying the cost will be treated as a one-time item in their accounts.
UBS said if the banks end up fully providing for the disputed tax the impact on their tier one capital ratios appeared to be manageable. Westpac’s liability could take 24 basis points off its 2009 tier one ratio.
BNZ chief executive Andrew Thorburn said yesterday that his bank could afford to pay “out of this year’s profitability”.
The bank remained very strong, he said.
BNZ made a $NZ785 million ($A633.12 million) bottom line profit in the year to September 2008 but this included a one-time gain.
The underlying profit was $NZ657 million ($A529.88 million).
Westpac reported a $NZ484 million ($A390.35 million) annual profit in New Zealand in 2008 after impairment charges.
The profit before charges was $NZ883 million ($A712.15 million).
The Reserve Bank of New Zealand, the regulator of banks, declined to comment on the BNZ decision.
Five New Zealand banks are disputing 22 transactions in a raft of court proceedings, of which the BNZ was the first.
One of their defences is that some of the transactions had binding rulings from IRD, which allowed interest and fees to be deductible and dividends to be exempt from tax.
The judgment from Justice John Wild said a binding ruling expressly applied only to the transaction ruled on.
IRD argued that the “tax tail wagged the commercial dog” in the transactions BNZ entered into with foreign counter parties.
Source: Perth Now July 17, 2009
