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Telstra, Toll Group and Qantas are among Australian and other foreign companies being pursued by New Zealand's Inland Revenue Department for millions of dollars of unpaid tax on debt instruments used to fund their NZ operations.

The IRD has actioned 16 cases against 10 companies – understood to be mostly from Australia – alleging tax avoidance.

It has declined to comment on any of the cases but interlocutory proceedings in the courts have brought some names and details to light.

The cases centre on the use of optional or redeemable convertible notes to recapitalise Kiwi subsidiaries, retire debt or make acquisitions.

Toll Group (NZ) Ltd made an application in the High Court in Auckland this week to prevent the IRD freezing its case until a test case involving similar debt instruments is heard against Telstra next year.

The IRD has been tied up in the courts this year, taking Australian and other banks to task over alleged tax avoidance involving hundreds of millions of dollars.

It won the first of these actions against National Australia Bank's NZ subsidiary, Bank of New Zealand, in July for $NZ654 million ($540.6 million); the bank has lodged an appeal.

The Telstra action involves the issue by its NZ subsidiary, TelstraClear, of $NZ1.46 billion ($1.2 billion) of optional convertible notes at $NZ1 each to its Australian parent, Telstra Holdings Pty Ltd, in June 2003 for recapitalisation of its NZ business.

Toll's barrister, Lindsay McKay, told the court this week that while Telstra and CanWest had tax losses to carry forward to shelter them, Toll did not, so it had good reason to oppose the stay.

Associate Judge Jeremy Doogue reserved his decision. The Toll action centres on Toll NZ's issue of optional convertible notes with a face value of $NZ435 million to its Australian parent, Toll Holdings, between May 2002 and January 2005.

Toll NZ used the money to help buy and fund the near-bankrupt Tranz Rail business it bought in 2003. The four tranches of convertible notes mature between May 2012 and June 2015.

After Toll sold its rail and Cook Strait ferry operations to the Government last year for $NZ690 million, the accounting firm PricewaterhouseCoopers revalued the OCNs at $NZ963 million – more than double the issue value.

Toll is therefore sitting on a large profit and wants to repatriate it to Australia, but has been unable to do so until the dispute is resolved.

If Toll redeemed the OCNs now, it risked feeding the IRD's case, potentially opening itself to be taxed on a dividend worth hundreds of millions of dollars.