Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 

Reserve Bank clips Aussie banks for 'tax hair-cut'

Reserve Bank clips Aussie banks for 'tax hair-cut'

By Pattrick Smellie

Dec. 11 (BusinessDesk) - The Reserve Bank has rejected submissions by Australian-owned banks operating in New Zealand for relief from new rules to guard against bank failures which will see them pay around $25 million in extra tax annually in this country.

The concerns of the Australian banks are reported in the RBNZ's response to submissions on the impact of new capital adequacy rules, known as Basel 3, which banks worldwide are being obliged to put in place as a buffer against future financial crises.

At stake is the treatment of financial instruments under the new regulations, requiring the nominal value of the instrument to be reduced by the potential tax and other offsets that occur at the time of conversion or write off in a bank rescue.

This so-called "tax hair-cut" could be worth around $25 million to New Zealand's Inland Revenue Department, the RBNZ noted in its regulatory impact statement on the effects of the Basel 3 changes, earlier this year.

The RIS says: "It is assumed that higher capital will shift income from a foreign tax jurisdiction (in practice Australia) to the New Zealand tax base generating a net benefit of about $25 million a year."

That is relatively small beer for the Aussie banks and represents a shift from Australia to New Zealand of taxable income.

All four of the major Australian-owned banks operating in New Zealand - Westpac, ANZ, BNZ and ASB - were hit with a collective $2.3 billion tax avoidance bill spanning several years in the late 1990's and early 2000's, in a landmark win for the IRD in December 2009.

However, banks had submitted to the RBNZ that "it would be difficult for banks to avoid the tax hair-cut and for the Australian-owned banks this could mean the parent bank would itself raise regulatory capital and inject capital into the New Zealand subsidiary rather than the New Zealand subsidiary raising capital through the New Zealand capital markets."

"This in turn could result in a parent bank running up against Australian Prudential Regulation Authority," which enforces capital adequacy ratios across the Ditch.

The banks also submitted they would be "highly likely" to have tax losses available "sufficient to offset any debt forgiveness income that would arise from a write-off."

The RBNZ, which was accused last week of having a bias in favour of the Australian-owned banks by Green Party leader Russel Norman, rejected those pleas.

"The Reserve Bank … wishes to remove any risks to the generation of this capital at the time of conversion or write-off," it says in its response to the banks' submissions. "The Reserve Bank accepts that if a bank had tax losses at the time of the non-viability event, then these losses could be offset against the income generated from the write-off.

"However, the Reserve Bank considers it is not possible to forecast the size of such losses in advance."

If a distressed bank were sold as part of a rescue, it would lose access to any tax losses, which cannot be transferred to new owners.

"The Reserve Bank has therefore not changed its tax hair-cut requirement."

(BusinessDesk)

© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

Reserve Bank: Official Cash Rate Unchanged At 1.75 Percent

Global economic growth has increased and become more broad-based. However, major challenges remain with on-going surplus capacity and extensive political uncertainty... More>>

Kaikōura Earthquake: Private Insurers Receive $1.8b Claims

Insurance Council Chief Executive Tim Grafton said most is for commercial loss at $1.36 billion, with residential claims amounting to over $460 million. “...We have a high level of confidence that most people will have received settlement offers by the end of this year." More>>

ALSO:

Forms And Data: New Proposals To Simplify Personal Income Tax

The Government is proposing to make tax simpler for individuals, with people whose only income is from a salary, wages or investments no longer being required to file tax returns to receive tax refunds or to calculate any additional tax. More>>