Drug giant Shire is facing a potential tax bill of up to €480 million as Irish Revenue officials examine the fallout from a collapsed takeover of the firm.
At issue is the $1.635 billion (€1.44 billion) "break fee" paid to Shire by suitor Abbvie after the US company abandoned its bid to take over the Irish business.
Abbvie pulled its $54 billion offer after US President Barrack Obama announced a clampdown on corporate inversions – where US companies buy businesses in lower-tax jurisdictions to reduce their own US tax liability.
Reporting annual results on Thursday, Shire acting chief financial officer Jeff Poulton said the company had obtained advice that the break fee should not be taxable in Ireland.
“The company has therefore concluded that no tax liability should arise and has not recognised a tax charge in the income statement in the current accounting period,” he said in his report on the full-year figures.
He added, however, that Shire’s interpretation “has not been agreed with the tax authorities”.
Perceived loopholes
If Shire’s position is eventually accepted by Revenue, it will prove embarrassing for the Government, which has made a virtue of proactively closing perceived loopholes in the corporate tax code ahead of a final report due this year from the OECD on its base erosion and profit shifting (Beps) project.
The OECD is looking to clamp down on aggressive tax practices by multinationals that take advantage of gaps and mismatches in tax rules across international boundaries following a series of high-profile political attacks on the tax arrangements of companies like Apple, Starbucks, Google and others, including Shire.
Break fees are not uncommon in takeover situations and are designed to discourage a suitor from walking away and leaving the target company exposed.
Essentially they are compensation payments for failure to complete a deal, and a number of accounting sources said that, in general, break fees would be treated as a capital gain, liable to tax at 33 per cent – a position that could open the company to a liability for a bill of up to €478 million.
Frank Greene, tax partner at Mazars, said the kernel of the issue for Shire was "what entity was the break fee paid to and where was that entity located". While Shire is domiciled here, it has a complicated corporate structure with entities in Jersey, the US and Luxembourg.
‘Adverse coverage’
“With the Beps initiative coming down the tracks and recent adverse coverage of some tax arrangements, Revenue would be looking very closely before taking a position,” Mr Greene said.
Shire itself moved to Ireland in 2008 after the then Labour government in the UK announced plans to increase taxation for corporates.
Both the company and its tax adviser PricewaterhouseCoopers (PwC) were sharply criticised recently by the British public accounts committee after details of separate tax arrangements by the pharmaceuticals group emerged in the LuxLeaks files.
Shire has said consistently that it complies fully with all tax obligations in the jurisdictions where it operates.
