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Banks Settle With IRD -- $2.2b Present For Taxpayer

Fuseworks Media
Fuseworks Media

Wellington, Dec 23 NZPA - Four major banks tonight settled long-running disputes with the Inland Revenue Department (IRD), and will pay 80 percent of the amount in dispute, more than $2.2 billion.

Inland Revenue commissioner Robert Russell and the Solicitor-General David Collins QC, said they were pleased the tax disputes have been settled.

The BNZ, Westpac, ASB Bank, and ANZ National have agreed to settle by accepting liability for a combined sum that exceeds $2.2 billion, believed to be the largest commercial settlement in New Zealand history.

Westpac will pay about $760m -- based on the amount it said would return to its books in the shape of the 20 percent it would not now have to pay.

BNZ will pay $658m, ANZ $413.7m -- with $27m still in dispute -- and ASB $264m, according to Dow Jones.

Settlement followed IRD's success in the High Court this year in two cases involving a particular type of transaction known as "structured finance".

Westpac Group confirmed the settlement tonight, saying it would now pay 80 percent of the amount the court deemed it owed. It spun the payment as a positive, saying it would bring back to its books $190m, the 20 percent it no longer has to pay.

BNZ said it had already paid its $658m.

The High Court and Court of Appeal both found against the banks in hearings over the past three years.

Westpac's agreement related to nine structured finance transactions undertaken in New Zealand between 1998 and 2002.

As part of the settlement arrangements no penalties will be levied against Westpac.

Westpac New Zealand chief executive George Frazis said, "We entered these transactions relying upon expert advice and a ruling issued by the IRD in relation to a similar transaction, but we accept the court has ruled and that, on balance, it is best that we accept this industry settlement and move on".

"Importantly, this has no impact on Westpac's service to our customers and the growing momentum in our New Zealand business."

All other details of the settlement agreement remain confidential, Westpac said.

BNZ said as a result of the settlement, its court proceedings would be discontinued.

Under the settlement BNZ has paid IRD $658m, which represented 80 percent of the full amount of tax and interest. Collectively, these payments fall within the provision of $661m raised by BNZ in August this year to reflect the High Court decision.

BNZ chief exceutive Andrew Thorburn said, "This is a complex and technical issue, and it has been the subject of much debate".

"Simply put; we acted in good faith at the time, the High Court has delivered a judgment, and now it is time to settle so that we can move on and move forward."

The settlement would have no impact on BNZ's ability to meet any debt and/or equity obligations, he said.

BNZ's overall capital position remained well in excess of Reserve Bank of New Zealand requirements.

The interest component of the settlement would be tax deductible and the balance of the provision not utilised will be included in statutory profit but excluded from cash earnings.

ANZ said it would pay the IRD $413.7m in primary tax and interest, with the parties agreeing to discontinue relevant legal proceedings.

The settlement included an amount of NZ$105.8 million related to three transactions for which ANZ holds an indemnity from Lloyds Banking Group plc associated with The National Bank of New Zealand.

Of seven transactions undertaken by ANZ and The National Bank of New Zealand which were under dispute, one residual transaction involving NZ$27 million in primary tax remained subject to commercial dispute with the Commissioner of Inland Revenue.

ANZ said it would continue to work through the issues with the IRD in relation to this transaction.

ANZ National Bank chief executive Jenny Fagg said: "We are pleased to have reached a commercial settlement in relation to six out of the seven disputed tax transactions which largely puts this matter behind us".

"It has always been our approach to pay all appropriate tax and we believed the transaction structures were appropriate given the independent advice received on the relevant law and rulings held by the industry.

"Given recent legal cases however, it is clear we need to approach these transactions differently and today's settlement reflects this.

"ANZ has not entered into any of these types of structured transactions since 2003 and since late 2005 all of these transactions have either matured or been terminated."

ANZ holds adequate provisions for the settlement and there would be no negative impact on its 2010 financial results, she said.

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