Loss predicted for Westpac in massive tax case

Thursday 8th October 2009

Westpac Banking Corporation's New Zealand arm is tipped to have lost its challenge to the Inland Revenue Department's pursuit of more than $900 million in unpaid tax and mounting interest arrears.

Trading in Westpac shares is halted on the ASX and NZX, ahead of the judgement's release at midday today. Parties to the action have had the judgement overnight, with leaks about the outcome emanating from an Australian daily investors' newsletter, The Sheet.

Westpac is promising a statement shortly after midday.

The case is the largest of six challenges by foreign-owned New Zealand banks against the IRD's contention that structured finance loans involving some of the biggest names in global corporate finance were commercial contrivances whose ultimate purpose was tax avoidance.

The IRD introduced evidence in the Westpac case quoting PricewaterhouseCoopers chairman John Shewan advising the bank earlier this decade that it should try to declare a tax rate close to that of its competitors, and that actual tax paid should be at least 6%, compared to the corporate tax rate of 30%.

The Bank of New Zealand has already lost its case on similar transactions, and is appealing the decision, which sees BNZ owing $654 million in back tax and interest, before penalty charges are applied.

A Westpac loss would be a huge win for the IRD and may prompt other banks involved in similar actions - ANZ, the National Bank (prior to the ANZ merger), ASB, and Rabobank - to reconsider their legal strategy. Deutsche Bank settled with IRD on similar issues some time ago.

According to a July research note from brokers UBS, ANZ's exposure (including National Bank) is $562 million, while ASB's case involves back tax and interst of $280 million.

Businesswire.co.nz

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