Australian Bank Wins Tax Refund

by Mary Swire, Tax-News.com, Hong Kong

29 March 2011

National Australia Bank (NAB) has been awarded AUD142m (USD146m) from the Australian Tax Office (ATO) after resolving a long-running dispute over the treatment of interest on hybrid shares issued in 1997. NAB made the announcement to the Australian Securities Exchange. The tax refund will be excluded from cash earnings.

A settlement was reached between the bank and the ATO just prior to the start of a trial to resolve the issue in the Federal Court in Sydney. "This removes the need for potentially long and costly legal proceedings, and finalizes a longstanding issue," chief financial officer Mark Joiner said. NAB did not admit liability in the matter.

The bank was given a AUD479m tax bill after the ATO disputed deductibility of interest on hybrid shares, known as exchangeable capital units (ExCaps). The securities paid annual interest of about 8% to investors, which was thought to be tax deductible but the ATO ruled in 2004 against all interest deductions in the six years to 2003.

NAB paid the Tax Office AUD309m when the dispute began, but took legal action in the hope of overturning the ruling. The bank’s final tax bill was AUD167m.

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