OZschwitz firms face hefty extortionist NZ tax bills

AUSTRALIAN companies are making multi-million dollar contingencies in their New Zealand subsidiarys' accounts in readiness for a hefty potential tax grab by New Zealand's Inland Revenue Department. As much as $NZ500 million ($401 million) could be at stake.

The department's pursuit through the court of 16 cases against 10 foreign companies -mainly Australian - emerged last year in an action against two Toll Group companies. It claims Toll and the others used optional convertible notes to try and obtain tax deductions for their business when there was no expense.

Until the slew of June 2009 company filings at the Companies Office just before Christmas, details of how much tax could be clawed back in successful court actions against the subsidiaries had not been revealed.

All companies are being scrutinised for alleged unpaid tax on redeemable or optional convertible notes - debt instruments issued in the late 1990s and early 2000s to recapitalise New Zealand subsidiaries, retire debt or make acquisitions.

New Zealand's Revenue Minister, Peter Dunne, said in November that High Court proceedings brought by Inland Revenue totalled about $NZ111 million, but as much as $NZ500 million could be clawed back by the tax department if "use of money" and penalties are added to the tax bill, accountancy experts have predicted.

The action comes hot on the heels of a settlement on Christmas Eve by the New Zealand subsidiaries of four Australian banks. They agreed between them to pay Inland Revenue $NZ2.2 billion in an industry wide agreement after their involvement in ''repo'' or collaterised loans which avoided tax in the late 1990s and early 2000s. NAB's subsidiary, Bank of New Zealand (BNZ), and Westpac had already been found liable and had appealed. Under the agreement, BNZ will now pay $NZ661 million to Inland Revenue, Westpac $NZ720 million, ANZ $NZ413 million, and Commonwealth Bank $NZ264 million.

Names of four of the 10 companies involved in the action have been revealed through preliminary court action

In its just-filed June 2009 accounts, Telstra New Zealand Holdings listed its potential liability as $NZ31.2 million on $NZ1.46 billion of convertible notes.

Toll had calculated a contingent liability of almost $NZ12 million on $NZ435 million of the notes. But since then the accounting firm PricewaterhouseCoopers has revalued the company's notes at $NZ963 million, more than doubling potential liability to nearly to $NZ26 million.

Qantas has noted the use of the notes in its accounts and pending legal action, but it did not quantify any potential amount it might owe Inland Revenue. Previous accounts, though, show the investment of $NZ43.8 million could incur untaxed interest of up to $NZ15 million, and that is before penalties.

Each of the companies claims to have taken expert legal advice and believe they operated within New Zealand law and do not believe they will be found liable.

LNK

OZschwitz firms face hefty extortionist NZ tax bills

OZschwitz firms face hefty extortionist NZ tax bills

Anarcho-Capitalist Categorical Imperatives

AnCaps' Laissez-faire Free Trade Zone