Rank Group plc said Monday that it will pay £4.5m as insurance to cap its contingent tax liabilities in the event that the European Court of Justice backs an appeal by Her Majesty's Revenue & Customs (HMRC) in respect of the £59.1m of VAT refunded to Rank in 2008.

Rank received £59.1 million in overpaid VAT from HMRC after the company successfully claimed that the inconsistent application of VAT to games of interval bingo contravened the European Union principle of fiscal neutrality. The decision was upheld by both the VAT & Duties Tribunal and the UK High Court.

HMRC appealed these decisions which have since been referred to the ECJ where a final decision is expected by the end of 2012.

In order to insure itself against an unfavourable decision by the ECJ, Rank said that it will make a cash payment of £4.5m to fund an agreement with a third party to cap some of its contingent tax liabilities.

As a result, in the event that the ECJ finds in favour of HMRC, Rank's net liabilities would total £25.6m plus interest as a result of the agreement, as opposed to £66.1m plus interest if the agreement was not in place – saving the company approximately £40.5m before interest.

Rank said that the agreement does not cover a further £42.5m plus interest of VAT refunds relating to overpaid VAT on games of main stage bingo and amusement machines, nor does it cover a contingent tax asset of up to £35m related to a claim made under the Condé Nast/Fleming ruling.

Shares in Rank Group plc (Co. Profile) (LSE:RNK) have gained 1.22 per cent to 124.90 pence per share as at 09:30 BST in London this morning.

Source: www.gamingintelligence.com

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