ANZ Bank reviews legal strategy after Westpac loss

ANZ Bank reviews legal strategy following Westpac tax case loss

By Pattrick Smellie

Oct 8 (BusinessWire) – Australia & New Zealand Banking Group is reviewing its legal strategy in light of today's High Court decision against Westpac Banking Corp. in a case involving tax and interest owing of $961 million, the bank has told BusinessWire.

The decision against Westpac is the second slam-dunk victory for the Inland Revenue Department in its defence of huge tax assessments against several foreign-owned banks, following a $564 million decision against National Australia Bank’s local unit, Bank of New Zealand, on similar issues in July.

ANZ is challenging the IRD over $560 million of assessments and accrued interest relating both to ANZ in New Zealand and the bank's recently acquired subsidiary, the National Bank of New Zealand. ASB and Rabobank have also challenged similar IRD findings on structured finance loans made in the late 1990's and early 2000's. Deutsche Bank has previously settled.

The ANZ told the ASX after the Westpac decision that it was undertaking a review of the 204-page judgement from Judge Rhys Harrison, and made no expression of support for its position. A spokeswoman confirmed that ANZ was also "reviewing legal strategy" as a result of the judgement.

The BNZ and Westpac judgements indicated that the "tax pendulum" is swinging the taxpayer's way at the moment, but at the expense of certainty about what constitutes tax avoidance, Thomas Pippos, a tax policy expert at Deloitte, told BusinessWire.

Pippos still expected appeals "all the way to the Supreme Court because of the sums involved" from BNZ and Westpac, but acknowledged the potential for parties to consider settlement rather than continue a legal battle that may take several more years, given the second IRD victory.

"The tax avoidance provision (of the Income Tax Act) is a pendulum. This case and the BNZ case have swung towards the tax department's favour," he said. The banks had cited other recent avoidance cases involving software and forestry, but these had ultimately not assisted in better defining the tax avoidance provisions.

"These judgements are much more interesting," said Pippos. "These are quite commercial transactions that arbitrage a regime that was deliberately put in place by Parliament."

Westpac's case explicitly defended the use of structured finance transactions - which Pippos now describes as "dead industry" - to choose how much tax they paid each year.

Westpac was advised to make tax payments at a rate as low as 6% but no lower, against the legislated corporate tax rate of 30%, by PricewaterhouseCoopers chairman John Shewan, evidence in the trial showed.

The ANZ also assured shareholders that it could easily accommodate a loss in its case. "Exposure for primary tax and interest related to this matter is the equivalent of less than 10 basis points in capital," the bank said.

Pippos also questioned the potential for settlements to emerge because tax officials, "some of whom have put a substantial chunk of their careers into these cases" would be inclined to settle after two victories, notwithstanding the risk of being overturned in the Court of Appeal or Supreme Court.

If new senior managers were involved at the banks, however, there was always potential for "new people wanting old issues gone," Pippos said. "Having said that, I would think that if a settlement were to be achieved, it would have been before this."

(BusinessWire)

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