Westpac loses structured finance tax case

The High Court in New Zealand yesterday ruled in favour of the Internal Revenue Department and against Westpac in a long-running wrangle over the tax treatment of structured finance transactions entered into some years ago.

The High Court suppressed publication of the decision in New Zealand until later today.  Westpac requested a trading halt on its shares yesterday afternoon.

The judge's reasons won't become available until today, but the background is similar to the case decided three weeks ago in relation to Bank of New Zealand: the structured finance transactions were essentially contrived to avoid tax and had no underlying business purpose.

While Westpac and other banks relied upon product rulings in relation to an initial transaction of this type for the later transactions, the IRD later raised tax assessments that all big banks have fought to overturn.

Westpac faces a tax bill in the order of NZ$900 million, taking into account interest. It will also have to pay legal fees.

Bank of New Zealand will appeal its adverse decision and has made a Clayton's provision for the tax payment (since the bank plans to ignore it for the purpose of reporting cash earnings).

Westpac is also likely to have to make an adequate provision, while ASB and ANZ National will also have to review provisions of their own. Legal cases between the two latter banks and the IRD are pending.