Air New Zealand gets its tax back from the Cook Islands

The Cook Islands Government has paid $5.4 million to Air New Zealand following a High Court case in Rarotonga.

The court ruled in the airline's favour and said Air New Zealand taxes should be paid in New Zealand instead of the Cook Islands.

The country's Prime Minister, Mark Brown, told Cook Islands News the payment was "essentially a tax return".

Brown told the newspaper on Saturday the dispute was related to taxing profits on government subsidised flights out of Los Angeles and Sydney.

RNZ Pacific approached Cook Islands Financial Secretary Garth Henderson for comment but was told he could not comment "due to confidentiality" and would only speak when given "clear advice".

In a written statement, Air New Zealand chief financial officer Richard Thomson said he acknowledged the airline was incorrectly taxed on certain payments received from the Cook Islands Government.

"This decision reinforces the international tax rules around the taxation of international airlines," Thomson said.

"All income Air New Zealand receives from the Cook Islands Government will be subject to taxation in New Zealand."

The Cook Islands Government also needs to pay additional legal fees, however, Brown did not reveal the how much these fees were when he was asked by the Cook Islands News.

Brown said no one was liable for the Air New Zealand payment.

"We engage top tax barristers to manage the more complex cases we have," he said.

"We refunded the tax, it's a tax refund, there is no liability on lawyers, one wins, one loses, so that's it. You win some, you lose some."