High Court called in to Westpac's tax dispute

Westpac has asked the High Court to resolve a $711 million retrospective tax dispute with Inland Revenue.

Westpac is disputing tax assessments received last September after an IRD investigation into so-called structured finance transactions used by all four major Australian-owned banks.

In its latest quarterly disclosure statement, released yesterday, Westpac said its total potential liability - including interest - up to March 31, 2005, was now $711 million. That is $64 million more than previously disclosed and potential interest continues to accrue.

Spokesman Paul Gregory said Westpac wanted the opportunity to argue its case in court as the two parties had failed to reach a resolution. The Westpac-IRD dispute covers five transactions undertaken in 1999 and 2000.

The IRD deputy commissioner of policy, Robin Oliver, said Inland Revenue would carefully consider its position "and respond appropriately".

Through structured finance transactions, the banks borrow money overseas, channel it through NZ, then invest it offshore. The IRD maintains that the banks have deducted interest they pay on these loans from their taxable New Zealand profit, even though they pay no tax on the transactions here. It does not believe the banks should make these deductions.

Westpac said it sought a binding ruling from the IRD on an initial transaction in 1999 and had followed the same principles in subsequent deals. Westpac believes the transactions are legitimate and do not constitute tax avoidance.

ANZ National Bank, BNZ and ASB are also in dispute with the IRD over back-tax bills. Combined, the four banks face potential bills totalling $1.6 billion. BNZ's total potential liability is $481 million, ANZ's $268 million and ASB's $157 million. None have raised specific financial provisions in case they are forced to pay up.

The Government announced law changes last November, expected to come into force in July, that will remove any tax advantages from structured finance transactions. The banks are winding down remaining deals.

Separately, Westpac said it faced 105 charges brought by the Commerce Commission under the Fair Trading Act. These stem from an industry-wide investigation into the disclosure of international currency conversion fees by credit-card providers. Five other banks and two card companies were also charged last November.

Westpac said potential penalties could include a refund of some or all of the fees collected and a fine of up to $200,000 a charge. The commission might also prosecute The Warehouse Financial Services, a partnership between Westpac and The Warehouse. Westpac is considering its position but is not raising a specific provision in its accounts to cover potential fines.

Potential bill

* Westpac, ANZ National Bank, BNZ and ASB combined face potential bills totalling $1.6 billion.

* Westpac's total potential liability is $711 million.

* BNZ's is $481 million, ANZ's $268 million and ASB's $157 million.

* None have raised specific financial provisions in case they are forced to pay up.