ASB Could Settle in IRD’s Tax Hunt

October 19, 2009 Taxation in New Zealand  No comments

New Zealand’s ASB bank has given indicators that it may settle with the Inland Revenue Department (IRD) in their structured financing tax evasion case against the bank.

Warwick Bryan, Investor Relations Analyst for the Commonwealth Bank of Australia (CBA), made indications that ASB Bank might opt for an out of court settlement with the IRD, who is pursuing the bank for allegedly evaded tax liabilities.

While commenting on Westpac Bank’s loss of a similar case against the IRD, Warrick Bryan said that there had not been a court hearing date set for ASB. Further, he claimed that the bank might not receive a date in the current fiscal year, and went on to say “But then it may never go to court and it may be settled in some way”.

At the same conference, it was revealed that ASB expects its total liability to the IRD to be NZ$285 million. Equity provisions made for the payment to the IRD has cut 6 basis points from CBA’s Tier One capital ratio.

The contention between the IRD and ASB revolve around series of structured financing transactions in which the bank made equity investments in offshore entities. The investment would be made on the condition that it be repurchased by the entity. The cost of the transaction would subsequently be used to offset the bank’s tax liability. The IRD contented that the purpose of these transactions does not extend beyond tax evasion.

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