Airline probes 'redundancy' debacle after €32.5m tax bill
Published 25/02/2011 | 05:00
AER Lingus has started an internal inquiry into how a controversial 'leave and return' scheme for staff left it with a €32.5m tax bill.
Former executives who were at the helm when the scheme was introduced two years ago have already been questioned, the Irish Independent has learned.
News of the probe, which is being carried out by advisory firm Deloitte and solicitors McCann Fitzgerald, comes after the airline announced it had agreed to the massive settlement with the Revenue Commissioners.
The taxman had raised serious questions about the scheme that allowed the airline to make 715 workers redundant before rehiring them on lower pay.
Under the deal, it was thought the lump sums would be tax-free as they were classed as "redundancy" payments.
Taxpayers would also have been hit because Aer Lingus would have been entitled to claim millions of euro for the 'statutory' portion of the redundancy.
All employers are entitled to a 60pc rebate from the State in cases of genuine redundancy.
But Revenue questioned whether the job losses were genuine redundancies in law since the workers had been rehired.
Aer Lingus sources yesterday confirmed that the airline was carrying out an internal review into the debacle.
Management are understood to believe Aer Lingus was hit with the €32.5m repayment because the airline did not seek sufficient legal and tax advice before launching the scheme.
But this is expected to be hotly contested by ex-Aer Lingus managers including former chief executive Dermot Mannion, former finance boss Sean Coyle and former HR boss Liz White.
News of the settlement came after Revenue warned the airline earlier this week that it would seek repayment of PRSI and PAYE that had not been deducted from the severance payments at the time.
The redundancy package offered to ground-handling staff two years ago was considered very generous at the time.
It was worth nine weeks' pay per year of service, but staff who took it agreed to return to new jobs on lower pay.
The deal was brokered by Aer Lingus and SIPTU after Mr Mannion announced plans to outsource ground-handling operations.
It was put forward by the union as an alternative to management's threat to outsource 1,300 jobs.
In 2009, 913 staff were made redundant and 715 of them successfully reapplied for new roles.
The scheme was the first prominent case of an employer seeking Exchequer rebates and tax breaks in order to bring in lower pay and conditions.
It was feared it might open the floodgates to other employers who could use it to make taxpayers shoulder the burden of their cost-cutting plans.
Unions argued that the alternative would also put a financial burden on taxpayers as it would have meant strikes and a hike in dole numbers.
In a statement, Aer Lingus said it was "deeply disappointed and frustrated" that it must cover the full cost of the redundancy payments.
It would make an "exceptional provision" of €32.5m following talks with Revenue.
The airline said it was "conscious of the risk" if it challenged Revenue's assessment, as an appeals commissioner could demand an even higher amount.