The Inland Revenue Department has signalled it will scrutinise structured financing deals undertaken by financial institutions for themselves and for their clients.The IRD worries that banks are crafting new financing arrangements with customers that test the limit of present tax regulations.The IRD has indicated it will focus on the cross-border financing arrangements where hybrid instruments are used. All financing arrangements over NZ$10 million principal will be looked at and IRD expects there will be benchmarking to support interest rates and guarantee fees.IRD sees particular issues with trans-Tasman financing because of different debt/equity rules in New Zealand and Australia. "Businesses should look at getting a binding ruling for new funding arrangements to minimise any uncertainty."It may be noted that IRD is currently fighting 15 cases of tax avoidance where optional convertible notes were used as a means of financing. Interest.co.nz reported that major overseas owned companies - including an unnamed bank - have made a settlement offer to resolve the dispute.Apart from this, IRD is investigating deals involving mandatory convertible notes which take advantage of differences in tax treatments between jurisdictions.Among the major Australian banks, Westpac NZ branch currently has on its books two significant structured financing deals that involve hybrid instruments. One of them is NZ$796 million of junior subordinated convertible debentures as of March 2010 that were issued by the New Zealand branch on April 5, 2004. The debentures were issued to a funding trust that is a member of Westpac. The NZ branch also has NZ$1.3 billion of similar debentures issued to another trust in August 2003.