One of the largest outstanding tax disputes in the State has moved closer to settlement, with the money at issue falling dramatically. Following discussions between consumer health group Perrigo and Ireland's Revenue Commissioners, the Irish tax authorities have now accepted that the contested sum is actually less than €1 billion.
US-based Perrigo, which is headquartered in Ireland, confirmed the figure in a filing made after US markets closed on Tuesday.
Perrigo chief executive Murray Kessler had stated at a recent investor conference that the original €1.64 billion bill "was not even real any more".
Talking to The Irish Times on Tuesday, he said he had been precluded giving the new, lower sum because he needed Revenue confirmation in writing. That, he says, has now been received.
“They have acknowledged in writing that, if they had the information back in 2018, the facts they have today, without [them] conceding any point under the exact same methodology that they use, that that number is at least 40 per cent lower and under €1 billion,” he said.
The disputed tax bill relates to the sale by 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 centres 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. The company maintains that the cash received was properly declared as trading income, taxable at 12.5 per cent. On that basis, Revenue said €1.64 billion was owing.
However, following extensive exchanges of information between the two sides, the company said Revenue now accepts that the original figure is overstated.
Among the issues that drove the downward revision was the failure of Tysabri to meet certain sales targets after its sale. That meant Perrigo did not receive about $400 million provided for in the sale agreement and allowed for in the Revenue calculation.
The nature of the original Elan/Perrigo return on the transaction also distorted the original figure.
“We filed as IP – and we still believe that to be correct – but because of that we submitted no deductions. If you have a normal capital gain, you are allowed to write off a lot of your expenses.”
"Revenue has said they will not object at the Tax Appeals Commission to those claims and so, when you go through that exercise with the experts, the number now starts [at this lower level]."
Mr Kessler stressed that the new number does not involve any concession by Revenue on its position that the sale should have been subject to capital gains tax.
Perrigo is hopeful that the two sides can now reach a settlement on the tax bill.
“Even though we still believe that Elan filed correctly and that ultimately, in a long drawn out battle, we would and win, we believe the right thing to do right now with reasonable minds all trying to get to a reasonable solution is for us to settle this case at a reasonable number that makes sense.
“I think it is good for Perrigo . . . and I think it is good for Ireland.
Kessler acknowledged the overhanging tax bill remains a distraction for the healthcare business and also a source of uncertainty which he believes has seen its shares marked down in the market.
The Tax Appeals Commission has also come under pressure to speed up the process of resolving tax debt. The top 20 outstanding appeals involve an aggregate sum of close to €3 billion. The biggest by far is the Perrigo case.
And with pressure mounting on public finances as the State looks to meet the extraordinary costs of Covid supports over the past 18 months, a substantial settlement would also be good news for the exchequer.