Scher­ing Plough loses $473m tax ap­peal

Bray People - - FRONT PAGE -

A US COURT has found against Scher­ing Plough in a case in­volv­ing a multi-mil­lion dol­lar tax charge on funds gen­er­ated in Ire­land.

The $473 mil­lion (€322.8 mil­lion) tax charge was im­posed by the US In­ter­nal Rev­enue Ser­vice on Scher­ing in 2004 in re­la­tion to earn­ings in 1991 and 1992, and was ap­pealed by the multi­na­tional which has offices in Bray and Rath­drum.

How­ever, in a re­cent rul­ing in the courts in New Jer­sey, US District Jus­tice Katharine Hav­den found against Scher­ing.

The court had to rule on whether the pay­ment by off­shore sub­sidiaries of € 690 mil­lion to the US par­ent was a loan from the sub­sidiaries – which would have cre­ated a tax charge – or a pay­ment for the as­sign­ment of fu­ture in­come streams to the sub­sidiaries as part of a com­pli­cated struc­ture in­volv­ing in­ter­est rate swaps with a third party.

This prac­tice would not have cre­ated a tax charge. The court heard that a Scher­ing-Plough sub­sidiary in Switzer­land, Scher­ing-Plough Ltd, con­ducted sig­nif­i­cant man­u­fac­tur­ing op­er­a­tions in Ire­land due to the favourable cor­po­rate tax rate for man­u­fac­tur­ers in Ire­land in the early 1990s.

By the end of 1991 the Swiss sub­sidiary had ac­cu­mu­lated $829.7 mil­lion of largely un­taxed cash from its op­er­a­tions in Ire­land.

‘ Scher­ing-Plough wanted to use the mostly un­taxed off­shore Ir­ish cash in the United States for mul­ti­ple pur­poses, in­clud­ing RD pro­grammes, nor­mal op­er­at­ing ex­penses, and par­tic­u­larly a $1 bil­lion stock re­pur­chase pro­gramme,’ ac­cord­ing to Judge Hay­den’s judg­ment.

The phar­ma­ceu­ti­cal gi­ant con­sulted Dutch bank ABN and its prin­ci­pal fi­nan­cial ad­viser, Mer­rill Lynch who rec­om­mended a scheme in­volv­ing lump sum pay­ments as­so­ci­ated with in­ter­est rate and cur­rency swap con­tracts that would last for 20 years. Scher­ing’s in­de­pen­dent au­di­tors Deloitte Touche ap­proved the scheme, say­ing the trans­ac­tion was a means of ‘ repa­tri­at­ing money from Europe without hav­ing it taxed as a div­i­dend’.

How­ever, when the IRS ex­am­ined the trans­ac­tions in later au­dits it found dif­fer­ently. In a no­tice is­sued in April 2004, it de­ter­mined that the ‘sub­stance of the trans­ac­tions’ was not ‘con­sis­tent with the form of th­ese trans­ac­tions, and that th­ese trans­ac­tions lacked eco­nomic sub­stance’.

It is un­der­stood that Scher­ing Plough is con­sid­er­ing its op­tions fol­low­ing the judg­ment which would in­clude ap­peal­ing the de­ci­sion.

Scher­ing-Plough has an an­i­mal health prod­ucts plant in Bray, Co Wick­low, where 240 peo­ple are em­ployed. Ear­lier this year it an­nounced it was to close the plant by mid-2011. They also have a plant in Rath­drum.

Newspapers in English

Newspapers from Ireland

© PressReader. All rights reserved.