Shares in Aer Lingus closed over 6% lower this evening after the airline said it will pay Revenue €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. But today's €32.5m 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 receive 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 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 it had to provide for and settle this issue, but it believed its approach would lessen liability the potential financial costs.
Aer Lingus is due to release its 2010 annual results on Monday. It says the redundancy issue is the subject of an internal review which has not yet concluded.
Revenue confirmed that it had been in discussions with Aer Lingus about the tax issues arising from its restructuring scheme for some time. But it said it would make no further comment on the matter.
The SIPTU union said it was satisfied with the company's confirmation that it did not intend to seek to recover any amounts arising from the plan from SIPTU members.
Ryanair, which owns more than 29% of Aer Lingus, said shareholders were entitled to answers to 'serious questions' raised by the issue, including who in Aer Lingus negotiated the deal with Government, and why did Aer Lingus believe it had no tax liabilities?
Aer Lingus shares closed 6.1% lower at 92 cent in Dublin this evening.
