The Revenue Commissioners go to court this week to defend on of the most contentious tax bills levied on a company in Ireland.
US drug company Perrigo has taken judicial review proceedings against the Irish tax authorities over what it argues is a €1.64 billion tax bill that Revenue had no right to impose. The hearing begins on Wednesday.
The case has been contentious from the outset, not least as tax charges against multinational investors in the State have been few and far between.
The Perrigo notice of assessment came to light shortly after the European Commission ordered Apple to pay €13 billion in back taxes it said were due to the Irish government over a 10-year period. That case is being contested by both the State and Apple.
Revenue says Perrigo owes the €1.64 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, to Biogen, its partner in the drug's development.
Because Biogen paid for Tysabri with an up-front sum and the promise of future royalties depending on sales, Revenue says it should have been treated as a capital gain, which would have been taxable at 33 per cent.
Perrigo treated it as tradable income in its Irish tax return – subject to tax at 12.5 per cent – and argues that this is consistent with how Elan reported the purchase and sale of intellectual property rights to medicines over two decades without any challenge from Revenue.
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.
Perrigo chief executive Murray Kessler is on record as saying that the company believes the government and Revenue "violated our legitimate expectations to rely on prior audit and 20 years of history".
“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.”
US tax expert Bob Willens, who has studied the case, has said that even if Perrigo were to fail in its judicial review, there is a very real chance of a settlement when the case subsequently goes back to the tax appeals commissioner.
Mr Willens forecasts that, in that case, the US company could end up paying only between 10 and 15 per cent of the current bill – €160 million to €240 million.
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.