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Banking Tax Settlement `Good For Both Sides'

Contributor:
Fuseworks Media
Fuseworks Media

Wellington, Dec 24 NZPA - A $2.2 billion stocking filler tax settlement is something of a win-win for both the Government and the country's four main banks on the eve of Christmas, says a banking academic.

The Bank of New Zealand, Westpac, ASB Bank and ANZ National have ended about five years of legal battles with Inland Revenue by agreeing to pay back $2.2b.

It is believed to be the largest single tax settlement in New Zealand history and stems from a High Court ruling in October that found the Bank of New Zealand and Westpac owed a combined $1.6 billion in taxes and penalties relating to foreign structured finance transactions.

The banks argued that several billion dollars in interest received on loans was not taxable, even though the costs they incurred were claimed as deductions to offset taxes on other income from home-loans and credit cards.

As part of the settlement Westpac will pay about $760 million, BNZ $658m, ANZ National $413.7m and ASB $264m, which will total about 80 percent of what the Government claimed they owed, or about $2.75b.

"Possibly, in terms of the negotiation the Government has done slightly better. I guess 80 percent is a fairly good return," said David Tripe director of Massey University's Centre for Banking Studies.

He assumed 80 percent was thrashed out across the negotiating table and banks had settled because there was the possibility they might not win, even though they thought they were in the right.

"It's got rid of the uncertainty of things and everybody can get on with life.

"It certainly isn't a good look for the banks to be engaged in long term litigation. One can understand them wanting to get these sorts of matters tidied up."

The matter would not affect bank customers in any obvious way, he said.

Revenue Minister Peter Dunne said last night the settlement ended a complicated five year legal battle on behalf of the taxpayer.

"It is good news that all parties can now move forward."

Inland Revenue had spent millions of dollars on the court case but it was a fraction of the discount. "This is a very good return in terms of the investment made to pursue them."

Punitive penalty interest could yet be charged on the transactions, Mr Dunne warned, but this morning he told Radio New Zealand it was a "full and final" settlement.

Despite only getting 80 percent of the bill, it was the biggest tax settlement in New Zealand's history. "In that sense you have got to be very happy."

However, the settlement was already reflected in Crown accounts and the Government currently borrowed $240m a week.

"There is no windfall here in that sense, there is no spending spree about to follow."

BNZ chief executive Andrew Thorburn told Radio New Zealand the bank felt there were a number of points that should be reconsidered but balanced that against the potential for even more years of litigation and legal wrangling.

"That wasn't something we wanted and in the end it wasn't something the IRD and the Solicitor-General wanted either. So I am pleased, in a sense, that it is now settled."

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