Vector is in a High Court dispute with Inland Revenue about whether $53 million the electricity company received from Transpower is taxable.
The IRD's position is the payments are taxable, Vector's position is that they are not, the power company's lawyer Lindsay McKay said in the High Court at Auckland this morning.
Vector, which has already paid the disputed tax amount, is pursuing court proceedings to have the IRD reimburse the money.
The payments at issues were made by Transpower to Vector in an engineering electricity project, McKay said.
This was an upgrade by Transpower, the state-owned enterprise which owns and operates the national electricity grid, which saw it install cabling between Penrose and Albany substations in Auckland.
Transpower entered into an agreement in 2010 to use Vector's infrastructure for this project, the court heard this morning.
Under the agreement, Transpower paid $50 million to Vector for access rights to a tunnel from Penrose to Hobson St in Auckland and another $3 million relating to infrastructure in the North Shore transmission corridor, McKay said.
Vector's position was the amounts received in both these cases were "capital rather than revenue in character", McKay said.
The hearing is set down for three days and continues this afternoon.