Tax error eliminates Pegasus surplus

Sabrina Gordon, Business Reporter

A TAX audit of Pegasus Hotels of Jamaica has found that the company did not pay over income tax on gratuity and allowances for workers for four years, negatively affecting the company's retained earnings by some J$37 million.

The error has turned the hotel company's J$7.08 million accumulated surplus into a deficit of J$30.302 million.

Pegasus' available capital has been reduced by J$30 million at the end of March 2010 as a result, although still reflecting a balance greater than in the previous year.

Stockholders equity totalled J$4.3 billion at the end of March 2010, compared to J$3.8 billion in 2009.

The gratuity error was detected by the Taxpayers Audit and Assessment Department (TAAD) for financial periods extending from 2005-August 2009, during which time the hotel's accounts were audited by PricewaterhouseCoopers.

The hotel company had also failed to remit income taxes of J$1.5 million over the period.

PricewaterhouseCoopers declined comment for this story, citing client confidentiality.

And head of Quivin Limited, Kevin Hendrickson, said he would not comment until the matter is fully resolved, offering no clarification on whether the TAAD would be imposing penalty for the errors, on previous owners Urban Development Corporation or new owner Quivin. Late or non-payment of income tax attracts a 20 per cent interest penalty per annum on the outstanding balance, calculated on a daily basis; plus a one-time penalty of 50 per cent against the assessment of outstanding taxes.

The TAAD findings place the hotel company in a slightly worse position than when the acquisition was finalised, but Quivin, which has offered to acquire 48.3 million shares in the hotel held by minority interests, said its management consultants, Deloitte Touche Tohmatsu, has advised that the discrepancy does not impact the fairness of its offer, which is priced at J$13.14 per share.

The stock is now trading at J$11, which puts a 19 per cent premium on the offer.

Hendrickson finalised the purchase of 59.81 per cent share ownership in the Pegasus from state company Urban Development Corporation at a price of US$11 million (J$945 million) on November 30, 2010.

The minority offer, if fully subscribed, will add another J$635 million to the acquisition bill.

The offer was scheduled to close on February 10, but has since been extended.

sabrina.gordon@gleanerjm.com