Finance Minister Michael Cullen has been attacked over claims that Transpower has been helping foreign banks avoid paying New Zealand tax.
Dr Cullen recently closed a loophole allowing an overseas bank's local subsidiary to borrow from its parent and claim an interest deduction. He said a recent Transpower loan wasquite different, with more, not less, tax being paid as a result.
He was questioned in Parliament yesterday about a $730 million loan taken out by Transpower in 2002.
It kept $200 million of the money, with the rest being "on-lent" to others by the organising bank.
Because more money was raised by Transpower than it needed, it paid a cheaper interest rate.
After the Parliamentary exchange, Transpower treasurer John Bishop issued a statement saying the deal meant the SOE saved $20 million in interest payments.
He said all elements of the transaction were taxable in New Zealand.
"Transpower reduced its borrowing costs, retained more earnings and therefore paid more tax. The New Zealand arranger [of the deal] paid tax on the fee received."
National finance spokesman John Key quizzed Dr Cullen on whether it was possible the deal was used to lower the tax that would otherwise have to be paid in New Zealand.
Dr Cullen said it was not a question that he, as shareholding minister of the SOE, could answer.
The arrangements did not avoid tax but he was unable to go into further detail as he could not comment on individual taxpayer affairs.
Tax avoidance claims were raised by University of Canterbury accountancy academic Sue Newberry, whose "views on these matters are not exactly reliable", Cullen said.
A banking industry source said that a bank or other financial institution could be using Transpower's strong balance sheet and good credit rating to raise money to on-lend.
Mr Key recently criticised Transpower for leasing its assets to overseas investors for a $34.6 million payout. Transpower said such deals were common and meant more tax being paid in New Zealand, while not putting ownership at risk.
Mr Key yesterday criticised Dr Cullen's unwillingness to answer questions in Parliament.
"Surely, the Finance Minister should be able to tell us whether kiwi banks or finance firms were involved in [a deal] that would have allowed them to escape tax obligations."
