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Perrigo, Irish Revenue in Settlement Talks Over $2 Billion Bill

Posted on May 17, 2021

Perrigo Co. PLC could be nearing a settlement with the Irish Revenue over a €1.6 billion tax bill, according to a company executive who confirmed an offer by Perrigo but did not disclose the terms.

Perrigo CEO Murray Kessler said during the company’s first-quarter 2021 earnings call May 11 that it is in technical discussions with the Revenue concerning a potential settlement of the assessment. The Revenue has maintained that a 2013 sale of intellectual property by Perrigo’s predecessor, Elan Pharma, should be taxed as chargeable gains at a rate of 33 percent, rather than as trading income at 12.5 percent, leading to what is widely regarded as one of the largest corporate tax assessments in Irish history.

The company disclosed the assessment in December 2018, immediately appealed it, and filed for judicial review with the Irish High Court in February 2019, challenging the Revenue’s ability to issue the assessment. The court declined to quash the tax assessment in a November 2020 judgment, and executives said the company would not appeal that decision, signaling that they would prefer to communicate with Irish tax authorities directly.

Following months of discussions, Perrigo has submitted a “board-approved offer to settle the matter,” Kessler said May 11. “A reasonable resolution grounded in law is preferable to what could be years and years of litigation,” he said, without elaborating on the amount of the offer.

Despite its settlement hopes, Perrigo stands by its original tax position, which Kessler said the company is “prepared to vigorously defend” if a resolution with the Revenue isn’t reached. He said the parties are still in talks and appear to be on a path toward a shareholder-friendly resolution, “but time will tell.” A settlement could be reached “in the coming year,” he added.

Uncertainty over the assessment has dampened the company’s stock value and unnerved investors, and disputing it in tax court could lead to years of appeals, executives have said. The tax bill has also spurred federal securities class action litigation over whether Perrigo should have disclosed its liability to the market sooner than it did.

The U.S. District Court for the Southern District of New York has dismissed some claims against Perrigo in the litigation, but the issue of whether a November 2018 Form 10-Q was misleading remains open. That filing disclosed the receipt of the Revenue’s audit finding letter, but claimed that the amount of potential adjustments couldn’t be quantified at the time. Both sides filed motions May 7 opposing summary judgment in the other’s favor.

Kessler said an $843 million assessment from the IRS that was accepted under the Ireland-U.S. tax treaty’s mutual agreement procedure is still on a path toward resolution. That assessment, which Perrigo received in April 2019, reflects the IRS’s theory that Elan should have paid more royalties for the exploitation of the IP of Athena Neurosciences Inc., which Elan acquired in 1996, “rather than rates based on transfer pricing documentation prepared by Elan’s external tax advisers,” according to company filings.

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