Bank of New Zealand yesterday lost a major tax avoidance case against the Inland Revenue Department after a High Court judge noted that there was no business that the bank had done when it entered into the structured finance transactions. "Unless lending or funding at a substantial loss is termed banking business, there was no business to be done here," the judge wrote in the decision. In its submission to the , the Commissioner noted that the business had followed the tax, rather than the tax the business. In short, this meant the tax was the business, and that tax business comprised of generating expenses deductible against other income, and applying that deductible expenditure to generate tax exempt income. In a statement that could have a direct bearing on similar pending cases the IRD has against the other banks, the judge said he has found that the nine BNZ and 16 "other bank" transactions were template transactions, and a template replicated for different businesses can indicate a tax avoidance purpose. The case is expected to cost BNZ as much as NZ$654 million. In its latest GDS for the period ending March 2009, BNZ had noted the contingent liability but expressed its confidence that its position in relation to the application of the taxation law is correct and it had obtained independent legal opinions that confirmed that the transactions complied with NZ tax law. Giving the reasons for arriving at the decision, the judge said the five transactions did not make use of the conduit relief that the Parliament contemplated when it enacted that regime. This was because BNZ was unable to act as the conduit by passing on to its parent NAB, the distributions it received in those transactions.   Also, the transaction generated the claimed deductible expenses in an artificial way by setting a higher guarantee procurement fee when such a guarantee would have been forthcoming from the parent of the counterparty for no or a very small fee. BNZ also set the fixed rate on the interest rate swap at the highest rate it thought defensible, and in some cases it was significantly higher than market parameters.BNZ, ASB, ANZ National, and Westpac face a combined tax bill of more than NZ$2 billion if they all lose their cases over structured finance transactions that the IRD has said were designed to avoid paying tax. Banks have consistently defended their financing structures, with each bank relying on product rulings from the NZ tax authorities for the first (but not subsequent) structures that attempted to arbitrage differences in tax rates between countries.