Australia's Westpac Bank was found guilty on Thursday of setting upoffshore financial arrangements to avoid paying hundreds of millions of dollars of tax in New Zealand. The bank was ordered to pay 961 million New Zealand dollars (711 million US dollars) in back taxes and accrued interest to the Inland Revenue Department (IRD).
After a 7-week trial in the Auckland High Court, Judge Rhys Harrison ruled that the four transactions in dispute were created solely for the purpose of avoiding tax. The court reportedly heard evidence that the bank was advised to declare tax publicly at a rate of around 15 per cent and make actual payments of at least 6 per cent, compared with the actual corporate tax rate of 30 per cent.
Westpac was the second Australian-owned bank convicted of massive tax avoidance. The Bank of New Zealand - which is owned by the National Australia Bank - is appealing against a High Court ruling that it must pay the IRD 654 million New Zealand dollars in back taxes and interest over similar arrangements. The IRD is also taking action against other foreign-owned banks, alleging that they also used structured finance transactions between 1998 and 2002 to avoid paying the correct amount of tax.
It is reportedly seeking about 562 million New Zealand dollars from the ANZ and National Banks, which are now merged but which were separate entities when the disputed arrangements were in place;and 280 million New Zealand dollars from the ASB, which is owned by the Commonwealth Bank of Australia. Westpac's New Zealand chief executive George Frazis said the bank was very disappointed with the decision and would consider appealing after studying details of the court's judgement.