Westpac loses massive tax case

In a judgement delivered this afternoon, Judge Rhys Harrison says the bank was lucky the Inland Revenue Department didn't attack other parts of the transactions in dispute.

"I have rejected Westpac's primary arguments on all contested issues," said Judge Harrison, who ruled that the four transactions in dispute were created solely for the purpose of tax avoidance.

The arrangements assisted Westpac in determining what rate of tax it chose to pay in New Zealand, and the court heard evidence that the bank was advised to declare tax publicly at a rate of around 15%, and make actual payments of at least 6%, compared with the legislated corporate tax rate of 30%.

Westpac is up for $961 million in back taxes and accrued interest on the IRD's assessments relating to cross-border structured finance transactions of a kind widely used by foreign-owned New Zealand banks in the late 1990's and early 2000's to reduce their local tax liability.  Punitive penalty interest could yet be charged on the transactions.