ASB Bank may face a back tax bill of up to $157 million.
The bank said yesterday that the back taxes related to controversial "structured finance transactions" used between 2001 and 2003.
But the Commonwealth Bank of Australia-owned entity said it had taken extensive independent tax and legal advice and
was confident the tax treatment it had adopted for the transactions and other similar transactions was correct.
ASB finance head John Duncan said the bank had received notices of proposed adjustments (NOPAs) from the Inland Revenue Department.
He noted that a NOPA was not an assessment of tax but a first step in the disputes process under which the IRD formally advises a taxpayer it is proposing to amend an assessment.
After the IRD's industry-wide review of structured finance transactions, a number of NOPAs have been issued in relation to similar transactions by all the other major banks in New Zealand.
The Reserve Bank has estimated that the four main Australian banks have exploited a loophole allowing them to escape paying $678 million in tax a year. The Government has since closed the loophole. The IRD is still disputing whether the loophole was legal to start with, despite giving a binding ruling on the issue in the banks' favour.
Duncan said that if NOPAs were issued to ASB for all structured finance transactions up to February 28 this year, it would result in a net potential tax liability of $157 million including interest charges.
However, ASB did not propose to create any provisions for that liability as it was confident of winning.
The ASB is the last of the four big Australian-owned banks to be hit with such a potential tax bill. The four combined face potential bills of $1.63 billion in disputes, some of which appear headed for court.
ANZ National Bank faces a bill of up to $348 million. However, $99 million is subject to tax indemnities given by Lloyds TSB, from whom ANZ bought the National Bank in 2003.
BNZ says its maximum potential liability is $481 million and Westpac puts its at $647 million.
The banks all say they acted within the law.
- NZPA, additional reporting Gareth Vaughan
