Editorial: Scrooge's shadow over deal

OPINION: New Zealand's hard-pressed taxpayers got a $2.2 billion Christmas present from the country's four biggest trading banks, but old Scrooge cast a long shadow over the bankers' seasonal largesse.

Australian-owned Westpac, BNZ, ANZ and ASB all reached a settlement in their long-running court battle over unpaid tax with the Inland Revenue Department (IRD) just before Christmas, and the big cheques landed in the Government's coffers in time for the New Year. Westpac paid $885 million, BNZ $658 million, ANZ $400 million, and ASB paid $250 million.

The cases revolved around structured finance deals, which the banks argued were perfectly legal ways of minimising their tax payments.

The IRD and, more importantly, New Zealand's judiciary, took a much different view, regarding the complicated cross-border deals as simply ways of avoiding paying tax.

The writing was firmly on the wall for the bankers in October when the High Court ruled that Westpac had avoided paying tax through nine structured finance deals. The IRD successfully argued that Westpac had avoided paying $586 million in tax and owed another $375 million in penalty interest, taking its total bill to $961 million.

It can be safely assumed Westpac's comprehensive loss concentrated the minds of the other banks, leading to the deal agreed just before Christmas.

Up until then there was still plenty of bluster around about legal appeals, but that soon evaporated.

There is a sting in the tail to the settlement. The banks agreed to pay 80 per cent of what the tax man was initially after in terms of unpaid tax and penalty charges.

The IRD and the Government presumably thought this was a good deal since it meant cash now and obviated the prospects of further court appeals, which would only add to the bill and line the pockets of lawyers.

But for the average taxpayer this is hard to stomach. After all, how many other taxpayers would get a 20 per cent discount on a tax bill after a scrap with the IRD in which they clearly came off second best?

A hefty discount would seem a puzzling reward for pushing the limit of the law.

The banks had argued that they never intended the structured finance deals as tax avoidance mechanisms, and their decisions to enter into the deals were based on the best advice at the time.

It would have been a grand gesture from the banks to settle the full bill, but it would have taken a Christmas miracle for that to happen. After being caught out in a grand plan to minimise their tax payments, it was unlikely that they would do anything other than try to minimise the penalties they owed as well.

The $2.2 billion equates to less than 4.5 per cent of the annual tax take which is a sizeable chunk. The full amount would have been preferable, but the taxpayer will have to trust the IRD and the Government's belief that 80 per cent was the best that could be hoped for.

- © Fairfax NZ News