BNZ is to pay Inland Revenue $654 million after losing its case to avoid paying $416 million in tax against the IRD.

BNZ had disputed IRD’s claims of tax avoidance and had gone to the High Court to avoid paying an extra $416 million in tax – a judgment released today found against BNZ.

The case relates to the bank entering transactions involving “repo” deals prior to 2005 that involved complex cross border lending by overseas-owned banks.

The commissioner believed these the transactions were devoid of commercial purpose and designed to avoid paying tax. IRD sent an amended tax bill to BNZ, which was then challenged in court.

The case involved six structured finance transactions with offshore counterparties. The tax in dispute for all transactions is $416 million. In addition, as at 30 June 2009, BNZ is liable to “use of money” interest of $238 million.

BNZ said in a statement that the judgment will have no impact on BNZ’s ability to meet any debt and equity obligations.

BNZ chief executive Andrew Thorburn added: “Clearly we are disappointed by the outcome. We will review the judgment which spans 179 pages, and make a decision within twenty working days on whether we will appeal. At this time it is our expectation that we will do so.”

Inland Revenue is in the midst of similar proceedings over tax bills with ANZ National, ASB Bank, Westpac and Rabobank – a hearing between IRD and Westpac is presently being heard at the High Court at Auckland.