Aer Lingus is to pay the Revenue Commissioners €32.5m to settle a dispute over a controversial 2008 redundancy scheme.
The settlement covers PAYE, PRSI, interest penalties and related costs arising from the so-called 'leave and return' scheme, under which 715 staff were made redundant, but re-employed within weeks on lower salaries and conditions.
The overall cost of the redundancy package at the time was €117m, with an average lump sum per worker of €72,000.
However, today's €32.5m tax settlement will bring the final cost to €149.5m.
When the scheme was announced in 2008, observers queried whether this qualified as a bona fide redundancy.
If it did, the workers would get generous tax treatment of their lump sums, and the company would receive a statutory redundancy rebate.
Some calculated the bill to the taxpayer could have hit €50m.
Before Christmas, it emerged that Revenue had serious doubts about the scheme, and had vetoed a similar scheme planned by the Dublin Airport Authority.
In today's statement to the stock exchange, Aer Lingus said that, after taking advice, it had concluded that it was in the best interests of the company to seek a settlement with Revenue.
The airline said it was conscious of the risk that in disputing a Revenue assessment, the Appeals Commissioner could impose a higher liability if the company lost its case.
Aer Lingus said it did not think it was appropriate to try to recover this money from staff, as it gave assurances to staff at the time of the lay-offs.
The airline said it was deeply disappointed and frustrated that the group had to provide for and settle this liability.
However, it says that in taking this course of action, the potential financial costs are lessened, and this represents the best approach for Aer Lingus and its shareholders.
The airline is due to release its 2010 annual results on Monday.
Shareholders are likely to question management on the background to the 'leave-and-return' scheme, which has left them nursing an exceptional liability of €32.5m.
Aer Lingus says the matter is the subject of an ongoing internal review which not yet concluded.
The Revenue Commissioners has said it does not comment on the tax affairs of individuals or businesses.
However it said: 'With agreement from Aer Lingus who has issued a statement on the matter, we can confirm that Revenue has been in discussions with Aer Lingus regarding the tax issues arising from their restructuring scheme for some time.'
