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BNZ Loses Structured Finance Court Case

Fuseworks Media
Fuseworks Media

Wellington, July 16 NZPA - Bank of New Zealand has lost a court case in which $416 million of tax resulting from international structured finance transactions was disputed, but the bank said it is likely to appeal.

The case is the first of a series facing the four main trading banks in New Zealand. In total they have been assessed to owe about $2 billion in unpaid taxes and interest.

The tax in dispute for BNZ, a unit of National Australia Bank (NAB), is $416m. In addition, as at June 30, BNZ was liable for interest of $238m net of tax.

Penalties have yet to be considered by the Inland Revenue.

BNZ said a High Court judgment released today found against it.

"Clearly we are disappointed by the outcome," BNZ chief executive Andrew Thorburn said.

"We will review the judgment which spans 179 pages, and make a decision within 20 working days on whether we will appeal.

"At this time it is our expectation that we will do so."

The Commissioner for Inland Revenue, Robert Russell, welcomed the ruling.

The Inland Revenue argued that the transactions were tax-driven and designed to avoid tax.

Justice Wild said that "putting aside the tax benefits they generated, these transactions had no commercial rationale, logic or purpose for the BNZ".

The ruling followed a 13-week-long hearing in Wellington's High Court.

Mr Russell said the BNZ made an equity investment in an overseas entity on terms requiring the overseas entity to buy back that investment when the transaction finished.

The transaction was structured to allow the BNZ to deduct its expenses of earning the income gained on the investment, while receiving that income free of tax.

The six transactions by BNZ spanned eight income tax years between 1998 and 2005.

BNZ said the judgment would have no impact on BNZ's ability to meet any debt and or equity obligations.

NAB shares were placed on trading halt on NZX this morning ahead of the court judgment, and they have since resumed trading.

In April, BNZ reported a 3.8 percent fall in half-year headline net profit to $400m. The bank said net operating income rose 2.7 percent from a year earlier to $1.04 billion for the six months to the end of March.

That took underlying profit, before the increased charges for bad and doubtful debts, to $669m, a 9.7 percent increase.

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