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Financing deal was tax positive for NZ

7 June 2005

Transpower says financing deal was tax positive for NZ

Transpower rejects any suggestion that a debt financing arrangement entered into in 2002 reduced the New Zealand tax take.

Transpower Treasurer John Bishop says the opposite is actually the case. “The arrangement resulted in more tax being paid, not less.

“In 2002 Transpower entered into a funding arrangement which raised $730 million, of which $530 million was on-lent. This enabled Transpower to obtain a significantly lower interest rate for the $200 million of debt that was retained.

“The counter-party for the financing arrangement was an off-shore (not Australian) financial institution. A New Zealand financial institution arranged the transaction and received a fee for doing so.

“All elements of the transaction were taxable in New Zealand,” John Bishop said.

“The transaction was tax positive for New Zealand. Transpower reduced its borrowing costs, retained more earnings and therefore paid more tax. The New Zealand arranger paid tax on the fee received.

“The Press has attempted to connect this transaction with tax-driven "conduit" deals under investigation by the Inland Revenue Department. That is absolutely wrong. I can state categorically that there were no conduit benefits for any party involved in this transaction.

“Transpower is required to minimise the cost of borrowing. This deal was a very sensible one which has saved around $20 million in interest payments,” John Bishop said.


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