As per the media reports, after its UK tax position became uncertain, National Australia Bank (NAB) switched a structured finance transaction from the UK to New Zealand.

This has come as one of the conclusions of a High Court judgment against NAB's subsidiary Bank of New Zealand. It could apparently cost it $654 million in unpaid tax and interest and more in penalties.
 
According to BNZ, it will most probably appeal today's judgment.

A source who wanted his name to be kept under cover, said: "Five New Zealand banks are disputing 22 transactions in a raft of court proceedings, of which this is the first. In total, they have been assessed to owe as much as $2 billion in unpaid taxes and interest."

It should be noted that they might use the binding ruling from Inland Revenue (IRD) on some of the transactions, which permitted interest and fees to be deductible and dividends to be exempted from tax, as one of their defenses.

The judgment, which was passed by Justice John Wild, specified that a binding ruling expressly applied only to the transaction ruled on.

Justice Wild said: "The genesis of the transaction structure appeared to be a proposal in June 1995 put by Clydesdale Bank, a UK subsidiary of NAB's, to the group credit bureau of NAB for a preference share transaction between Clydesdale and a subsidiary of the AIG Group."

It was pointed by NAB's taxation division that there was uncertainty in the bank's UK tax position. It advised for substituting the BNZ.

It should be noted that the ability to get a binding ruling from IRD, which was not available from the equivalent UK authority, was one of the advantages to BNZ.

"Justice Wild found that the transactions were not in keeping with the intention of the conduit relief regime, which is designed to encourage multi-nationals to use New Zealand as an investment base by relieving, from New Zealand income tax, income earned overseas by a New Zealand subsidiary," concluded the source.

The judgment, according to BNZ, will have no effect on its ability to meet any debt or equity obligations.