Over the counter drugs company Perrigo has settled the largest tax bill ever issued by the Revenue Commissioners for €297 million. When credit for certain taxes already paid is factored in, the cash payment that Perrigo will make will be €266.1 million, according to a filing with the Securities and Exchange Commission in the US.
The figure is just a fraction of the €1.64 billion bill the Revenue initially levied against the company which is headquartered in Ireland but operates out of the small Michigan town of Allegan.
Revenue had already accepted earlier this summer that the contested sum was just under €1 billion – at €976 million – following discussions between the two sides.
In an announcement after US markets closed on Wednesday, Perrigo said it was glad to put the uncertainty behind it. The Revenue assessment had been hanging over the company since 2018.
The company said it did not have to pay any interest or penalties on the disputed sum as part of the settlement.
For the exchequer, it is a significant boost at a time when Minister for Finance, Paschal Donohoe, and the Minister for Public Spending and Reform Michael McGrath are trying to balance their budget figures.
Contested transaction
Perrigo chief executive Murray Kessler said the company was still confident in its original interpretation of the contested tax transaction. However, it made sense for the group, its staff and its shareholders to agree a reasonable settlement and allow both sides to move on.
Mr Kessler has been leading a radical reshaping of the business and the Revenue assessment was, in his words, the final unresolved issue hanging over the group. He called it a “distraction” and blamed the uncertainty surrounding the group because of the scale of the tax assessment as a factor holding back the company’s share price.
The disputed tax bill relates to the sale by Irish pharma company Elan of its intellectual property interests in multiple sclerosis drug Tysabri in 2013 to Biogen for an up-front payment of $3.25 billion and a share of future royalties. That sale took place months before Perrigo bought what was left of Elan.
The row centred on Revenue's decision, following a 2016 audit, to characterise Elan's sale of Tysabri as a capital transaction, subject to tax at 33 per cent. On that basis, Revenue said €1.64 billion was owed and issued a Notice of Amended Assessment. The company maintained that the cash received was properly declared as trading income, taxable at 12.5 per cent under corporation tax.
Overstated
Revenue accepted in July of this year, without backing down on its view of the deal as a capital gains transaction, that the original figure it had assessed was overstated.
This was due in part to Perrigo not receiving $400 million expected under the terms of the Tysabri deal because the drug had not hit subsequent sales targets. Revenue also agreed that a capital gains tax interpretation of the sale would allow Perrigo set substantial expenses against the reported gain.
Perrigo was heading for a hearing of its case by the Tax Appeals Commission, where its original €1.64 billion bill accounted for a majority of the €3 billion at issue in the 20 largest cases before the commission.
Only Apple has ever faced a larger tax bill in Ireland but its contested €13 billon charge was handed down by the European Commision.
Mr Kessler has always said that he believed a resolution of the impasse would be good for Perrigo and good for Ireland.
Speaking earlier this year to The Irish Times, he said the tax dispute was affecting plans for the comapny to invest further in Ireland.
“I want to invest more. I have plans to invest more in Ireland. People ask me all the time: ‘Are you pulling out?’ We’re not pulling out, we want to invest more but we have to get it to a friendlier environment.
“If we didn’t have this battle over the last two years, we would be trying to find ways to put more things in Ireland to get more benefit. Because we are not really taking advantage of the structure.”
