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Inland Revenue welcomes High Court decision

The Commissioner of Inland Revenue, Robert Russell, has welcomed the High Court ruling that BNZ must pay $416 million in back taxes.

Justice Wild yesterday rejected BNZ’s challenge to Inland Revenue’s tax assessments. The ruling followed a thirteen-week hearing in the Wellington High Court, which finished last month.

The case revolved around a particular kind of transaction known as 'structured finance.'

The BNZ made an equity investment in an overseas entity on terms requiring the overseas entity to buy back that investment when the transaction finished. The transactions were structured to allow the BNZ to deduct its expenses of earning the income gained on the investment, while receiving that income free of tax.

The six transactions in issue spanned eight income tax years between 1998 and 2005.

Justice Wild said, "Putting aside the tax benefits they generated, these transactions had no commercial rationale, logic or purpose for the BNZ."

Mr Russell said that Inland Revenue considered these types of transactions to be tax avoidance. "The High Court has agreed, and we are pleased with this outcome."

The decision is open to appeal.