New Zealand Bank Guilty of Serious Tax Evasion

October 12, 2009 Offshore BankingOffshore TaxationTaxation in New Zealand  No comments

The New Zealand branch of Westpac Banking Corp has been found guilty by the New Zealand High Court of tax evasion, the legal action concerns a total of NZD918 million.

Court proceedings revolved around adjustments made to returns filed by Westpac in which a number of transactions were claimed and used to reduce the overall tax liability. The IRD contested that these were carried out purely with the purpose of tax evasion and subsequently assessed the bank’s tax liability higher. The tax figure dispute consists of NZD586 million base and a further NZD332 charged as interest.

The assessment revolved around nine international structured financing transactions which took place between 1998 and 2002. These consisted of Westpac making an equity investment in an offshore entity, upon the completion of which the entity would re-purchase the investment. Involved transaction costs were subsequently used to offset tax liabilities. In the view of IRD this constituted tax evasion.

Welcoming the decision, Robert Russell, Commissioner of the Inland Revenue Department, said “This is the second significant decision in our favour involving banks and this type of transaction, and we’re very pleased with the outcome”.

George Frazis, Westpac New Zealand chief executive, commented on the decision stating that he was “very disappointed” and that the bank had “always believed that the transactions were commercially justified and complied with the law”. Westpac could appeal the decision, upon further review of the verdict.

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