Groupe Aeroplan Inc. today announced that its European division, Groupe Aeroplan Europe, has been notified of the result of its outstanding Value Added Tax litigation. The European Court of Justice (ECJ) has ruled against Groupe Aeroplan Europe and in favour of HM Revenue & Customs. The case will be referred back to the UK Supreme Court for judgment based on the guidance of the ECJ.
The possibility of an adverse judgment was contemplated at the time of the purchase of Loyalty Management Group in 2007 and accordingly the purchase consideration was subject to a holdback of £27.1m which was placed into an escrow account. This amount will be released from escrow to Groupe Aeroplan and used to partially fund the VAT payable. There will be a net one-time non cash charge of approximately £33m which will affect Adjusted EBITDA, reflecting the repayment of historic input tax credits and a £13m one-time cash outflow, which includes interest charges.
Groupe Aeroplan Europe is well prepared to mitigate any ongoing increase in the cost base resulting from the ruling. In addition the findings of the judgment may provide some scope to assist in this mitigation.