Drug company Perrigo has a better than even chance of seeing off a demand from Irish Revenue for €1.64 billion in back taxes, according to a US industry analyst.
Citing a US-based tax expect, analysts at RBC Capital Markets ay Perrigo has a better than 50 per cent chance of getting a favourable ruling in the Irish High Court in April. The comments come in a note by analyst Randall Stanicky to clients this week.
Tax expert Bob Willens has said previously that even if Perrigo loses in court, the case will then go back to the tax appeals commissioner and he feels there is a very real chance of a settlement that could cost the drug company just 10-15 per cent of the current bill – or a figure of €160 million-€240 million.
Mr Willens’s belief is that, in the end, there is an 80 per cent chance of a favourable outcome for the US drug maker.
Analysts consider the uncertainty surrounding the Irish tax bill is weighing on the company’s stock market performance.
In what is the second-largest tax charge in Irish history after the Apple case, Revenue says Perrigo owes the €1.6 billion because of its purchase of Irish pharma group Elan in 2013 and the sale by Elan eight months previously of its multiple sclerosis drug, Tysabri.
At issue is the nature of payments to Perrigo from Biogen, which had developed Tysabri with Elan and acquired full rights to the drug in 2013. It made an upfront payment and committed to further royalty payments depending on sales.
Capital gain
Perrigo treated this money as trading income in its Irish tax return but Revenue argues it is a capital gain and should therefore be taxed at a higher rate.
Perrigo argues its approach is consistent with how Elan reported the purchase and sale of intellectual property rights to medicines over two decades without any challenge from Revenue.
In the High Court hearing, which is scheduled for late April, it will argue that the Revenue treatment of Elan’s returns meant it had “legitimate expectations” as a taxpayer that it should be able to account for the Tysabri sale as trading income.
"We believe that the Irish Government, and the Revenue, violated our legitimate expectations to rely on prior audit and 20 years of history and that [they] improperly even put this tax forward, Perrigo chief executive Murray Kessler told analysts last year.
“So we are in a judicial fight first to see if it is even legal to assess the tax, not whether the tax is wrong.”
Perrigo also faces a separate tax challenge from the US Inland Revenue Service (IRS). Mr Willens expects that case to settle this year.
And last month, a New York federal judge partially dismissed an investor suit against the company over what it did or did not tell shareholders about the Irish tax charge, and when.
Perrigo focuses on the manufacture of over-the-counter and generic medicines. Its purchase of Elan in 2013 was by way of corporate inversion, a controversial tactic that saw foreign companies reverse themselves into Irish businesses in order to secure an Irish domicile and a lower corporate tax rate.
