Banks' taxation loopholes remain on Govt hit list

By PETER GRIFFIN

A tightening of tax rules relating to the banking sector is on the cards this year as the Government moves to close off loopholes that lower the banks' tax loads.

Finance Minister Michael Cullen said that legislation to address "any weaknesses in current tax rules applying to banks" may be included in the taxation bill to be introduced this year.

His comments follow the revelation in March that the banks are under Inland Revenue Department scrutiny for their tax payments.

The IRD and Treasury have been reviewing the tax laws relating to the banks as part of a process that has been ongoing for over a year.

Last month the IRD hit the Bank of New Zealand with a $57 million tax bill and the prospect of demands for another $212 million plus interest and penalties, a move the BNZ is challenging.

The tax bill relates to disputes between the IRD and the BNZ over three structured financial transactions in the late 1990s.

The IRD is also looking into structured financial transactions at Westpac, which this month voluntarily gave IRD a further six months to review the transactions.