Revenue issues tax demand of over €1.6bn to pharma giant Perrigo

The Revenue Commissioners have issued a tax demand of more than €1.6 billion on major pharmaceutical company, Perrigo, in a move likely to set off a lengthy legal battle.

The assessment, the second largest in Irish history after the Apple case, relates to a dispute over the amount of tax paid on the sale by Elan – later bought by Perrigo – of its stake in a major drug in 2013.

Perrigo, which is quoted on the New York Stock Exchange but has its headquarters in the Republic, is set to appeal the assessment and, if necessary, take legal action to fight it. This is likely to delay any payment to the exchequer for some time.

The company issued a statement to investors last night after the receipt of queries from The Irish Times saying it believed that the Revenue Commissioners were wrong " as a matter of law."

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Very significant

The amount involved would be very significant for the exchequer and is equal to about 15 per cent of the total annual corporation tax take.

It is a tax assessment second only to that made against Apple, which the European Commission ruled owes the State more than €14 billion.

The tax bill served on Perrigo relates to the sale by Elan of its interests in multiple sclerosis drug Tysabri in 2013 to Biogen for an up-front payment of $3.25 billion and also a share of future royalties.

The company said that the cash received was declared as trading income , taxable at 12.5 per cent. Revenue argues that Elan was liable at the capital gains tax rate of 33 per cent as the sale was not part of its normal trading activity. Reports at the time said that Elan had used accumulated losses to avoid paying any up-front tax on the transaction.

In October, Perrigo said in a stock exchange filing it had received an audit finding relating to a Revenue audit for 2012-2013. This could lead it to have to pay a “material” amount to the Irish exchequer, it said, though the figure was not revealed. The filing added: “We disagree with the Irish Revenue position as asserted in the audit finding letter and intend to contest it.”

The company said it subsequently received a formal letter of assessment from the Revenue, for an amount of €1.636 billion.

It said it would to appeal the finding, in the first instance to the Appeals Commissioner. Depending on the outcome, it could then move to the courts.

The Revenue is thought to have moved now because tax rules mean it generally cannot go back more than five years to issue tax bills.

A senior Government source who has been briefed on the issue had earlier confirmed the expectation in Government Buildings that a very significant tax assessment had been raised against the pharma giant. However, the source cautioned that the issue was likely to be fought in the courts and that payments are unlikely to the exchequer for some time.

Market capitalisation

The tax assessment is a significant issue for Perrigo, which has a market capitalisation of $7.2 billion and whose 2017 revenues were just under $5 billion.

Perrigo is an international pharma company that does the bulk of its business in the US. When it bought Elan in 2013 it moved its headquarters to Ireland, largely as a way to cut its tax bill.

The line between corporation tax and capital gains tax typically comes into dispute in cases where companies claim the sale of assets is a normal part of their business. Perrigo’s statement said that the sale was part of Elan’s normal trade and was thus liable at the 12.5 per cent rate. The Revenue disputes this and says that capital gains tax should have been paid on the transaction.

The company says it strongly disagrees with the Revenue move which it said was made when it understood that discussions concerning the tax issue were still ongoing. It said that Elan’s normal trade involved dealing in intellectual property, the sale of which was central to the transaction in question. It said it will contest the notice of assessment “vigorously” through all available judicial and administrative channels.