Sovereign Assurance says it has lodged proceedings in the High Court to challenge Inland Revenue Department (IRD) reassessments claiming tax worth up to NZ$67 million.
Sovereign, which is ultimately owned by ASB's parent Commonwealth Bank of Australia, says in its latest annual financial statements that the claims relate to the treatment of reinsurance arrangements in the 2000 to 2006 tax years.
The company says it has filed court proceedings to challenge the reassessments and it expects IRD to dispute the tax treatment of reinsurance arrangements in later years and to issue reassessments for them in due course.
"Should the IRD issue reassessments for all relevant tax years, the estimated maximum potential tax liability (including use of money interest and excluding penalties) as at June 30, 2010 would be NZ$67 million," Sovereign Assurance says.
"Based on independent tax and legal advice, the company is confident the tax treatment it has adopted for the transactions is correct."
The NZ$67 million figure is up NZ$14 million, or 26%, year-on-year due to interest, the addition of expected IRD reassessments for 2009 and 2010, and the recognition of a tax asset arising from the "successful" resolution of an unrelated matter that has been offset against the contingent liability as of June 30, 2009.
Sovereign Assurance recorded June 2010 year net profit after tax of NZ$118 million, up from NZ$110 million a year earlier. It paid NZ$22 million of tax, up from NZ$18 million.
Sovereign's battle with the taxman comes after ASB, alongside ANZ, BNZ and Westpac, settled a long running dispute over structured finance transactions with the IRD just before last Christmas. The four banks agreed to pay a combined NZ$2.2 billion, or 80% of the total claimed by the IRD.
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