LHV Institutional Baltic Insight, May 12th, 2020

* Novaturas AB (‘Novaturas’, NTU1L LH or the ‘Company’) announced on 11th May 2020 that it had reached an agreement with the Lithuanian State Tax Inspectorate (STI) over the taxation of its goodwill. The Company explained that the STI had completed the Novaturas tax audit for 2014-2018. According to the STI, during the period the Company incorrectly attributed amortisation costs relating to the goodwill pertaining to the acquisition of Novaturas shares in 2007 and the 2008 merger of Central European Tour Operator with Novaturas as an allowable tax deduction. Additionally, Novaturas, according to the STI, incorrectly used the tax loss caused by the goodwill amortisation during 2008-2013 in calculating the taxable profit for 2014-2018.
* The Company stated that it rejected the assessments made by the STI but, to minimise time, materials and legal costs and thereby avoid an extended potential tax dispute, the STI and Novaturas reached a mutually agreeable value of tax to be paid. This amount has been declared at EUR 894,119 for the 2014-2018 period, and it was agreed that there would be no fine or interest on the late payment of the tax for the said amount.
* The Company has also agreed that, during 2019-2023, it will pay income tax on the taxable income without further deducting amortisation on goodwill. This will allow the Company to resolve its costs and avoid tax disputes. The Company has been accruing deferred tax liabilities over the last few years, with a deferred income tax liability at the end of 2019 being EUR 3.4m. Therefore, the Company believes that the agreement has been in its favour, in that the 2019 profit may be restated c.a. EUR 2.0m higher due to the write off of part of the deferred tax liability, while the EUR 0.9m will become a payable tax liability. In terms of the potential impact on the Company’s liquidity, Novaturas is negotiating on entering into a tax loan agreement (once COVID-19 passes) of up to three years. As such, the Company does not believe that the payment of this tax amount will necessarily adversely impact its liquidity.