Perrigo’s pause
The High Court has refused Perrigo Pharma’s application for judicial relief challenging the Revenue’s notice of amended assessment of corporation tax liability.
On 4 November 2020, the High Court refused an application for judicial review relief in Perrigo Pharma International DAC v John McNamara, the Revenue Commissioners, the Minister for Finance, Ireland and the Attorney General ([2020] IEHC 552). (See the November Gazette, p42.)
Perrigo had challenged the validity of a notice of amended assessment issued by the Revenue Commissioners in November 2018. The transaction that gave rise to the controversy between the parties involved the 2013 sale to Biogen of Perrigo’s 50% interest in intellectual property (Tysabri IP).
Following a tax audit, Revenue concluded that the disposal should have been treated as a capital disposal and have been subject to tax at 33%, rather than the 12.5% rate applicable to trading transactions.
Perrigo instituted the proceedings on the grounds that the assessment was (a) a breach of Perrigo’s legitimate expectations; (b) so unfair as to amount to an abuse of power; and (c) an unjust attack on its constitutionally protected property rights.
The case, based on legitimate expectation, has a number of aspects to it. It is based on four separate categories of representation alleged to have been made by Revenue over a period of more than ten years.
The burden of proof was on Perrigo to establish that representations were made to it by Revenue that gave rise to the expectation that outright disposals of IP would be regarded as trading.
Legitimate expectation
In Glencar Exploration plc v Mayo County Council (No 2) ([2001] IESC 64; [2002] 1 IR 84), the Supreme Court confirmed that there are three matters that must be established to mount a claim based on legitimate expectation:
- The public authority must have made a statement or adopted a position amounting to a promise or representation,
- The representation must be addressed or conveyed either directly or indirectly to an identifiable person or group of persons, and
- The representation must create an expectation “reasonably entertained” by the person or group that the public authority will abide by the representation.
The Shannon Certificate
The first category of representation related to the Shannon Certificate issued by the Minister for Finance on 20 February 2002, which enabled the certificate holder to avail of a special 10% rate of tax for approved trading activities that were carried out in the Shannon Airport area.
Under the tax acts, the minister could not grant such a certificate unless the operations of the certificate holder were trading in nature.
Perrigo argued that part of its trading activities included disposals of IP, and that receipt of the certificate was confirmation that disposals of IP were trading in nature and covered by the special tax regime. Perrigo argued that, in the life-sciences industry, the term ‘exploitation of IP’ was commonly understood to include disposals of IP.
The court did not accept this line of argument. It was the court’s view that the certificate made clear that the question of whether the certificate holder was trading was an issue to be determined after the operations in question had taken place.
Therefore, the issue of the certificate by the minister could not be taken as a representation that Revenue accepted that disposals of IP formed part of Perrigo’s trading activities, and therefore the certificate could not ground a claim for legitimate expectation.
Tax Briefing 57
The second category of representation was based on a Revenue tax briefing (TB 57). When the Shannon and IFSC special tax regimes were coming to an end, tax practitioners and Shannon and IFSC-certified companies sought clarity and assurances from the Revenue in respect of the rate at which profits would be taxed in the future. Revenue published TB 57 in October 2004 to reduce the number of queries that Revenue would have to manage about the issue.
Perrigo placed emphasis on two sentences from TB 57 in which the Revenue stated that trading activities already meeting the requirements of the IFSC and Shannon regimes “will qualify for the 12.5% tax rate”.
The court concluded that, on a fair reading of TB 57, it could not be suggested that the Revenue was representing that any activity carried on by the holder of a certificate would be treated as trading and, as such, this ground could not sustain a claim for legitimate expectation.
Dealings between the parties
The third category of representation was alleged to arise as a consequence of the course of dealings between the parties. Until January 2013 and the introduction of the self-assessment regime, the Inspector of Taxes issued a taxpayer with a notice of assessment.
In this context, Perrigo characterised the inspector’s role as being “interposed between the return and the liability to tax”, where the Revenue, by not subsequently amending the assessment, was declaring itself satisfied with the contents of the tax return.
The court did not accept this argument, noting that every taxpayer faces the prospect of a tax return being reopened and examined by an inspector within the relevant four-year period.
Therefore, it could not be suggested that the non-objection by Revenue in the past could be said to give rise to an implied representation that the ongoing transactions would not be subject to the possibility of an adverse assessment by the Revenue.
In addition, Perrigo made the case that, between 1997 and 2005, it accounted for corporation tax at the 10% rate on its trading activity, which included disposals of IP. Perrigo argued that the financial statements submitted with its tax returns clearly showed that IP was treated as trading stock.
Revenue accepted that corporation-tax returns were submitted, along with financial statements and tax computations over the years, but, as the company was loss-making, the Revenue did not carry out a review of the treatment of IP until September 2016.
Also, while not determinative of the ‘trading’ issue, the Tysabri IP was held as an asset for sale under IFRS 5 – the accounting standard that applied to non-current assets held for sale.
Critically, the court was unable to make any finding that Revenue must have known that IP disposals formed part of Perrigo’s trade and, as such, this ground could not sustain a claim for legitimate expectation.
The court held that, on the basis that the three aspects of Perrigo’s case did not amount to a representation that could ground a claim for legitimate expectation, it was not possible to come to the conclusion that the combination of the certificate, TB 57, and the course of dealings between the parties would give rise to a different conclusion.
The other aspects
Regarding Perrigo’s argument that the assessment was so unfair as to amount to an abuse of power or an abuse of Perrigo’s constitutional rights, the court concluded that, in circumstances where there was no basis for Perrigo to have a legitimate expectation that an amended assessment would not be issued, it could not be suggested that the Revenue (by issuing an amended assessment) acted so unfairly that it amounted to an abuse of process. For the same reasons, the argument based on abuse of Perrigo’s constitutional rights also failed.
Perrigo has a right to appeal the decision to the Court of Appeal. With €1.64 billion at stake, it may choose to exercise this right. The judicial review proceedings were concerned with the process of issuing the amended assessment and, as such, the High Court was not the forum for Perrigo to make the case that disposals of IP formed part of its trade.
Perrigo has appealed the amended assessment to the Tax Appeals Commission (TAC) and the question whether the disposal of the Tysabri IP constituted a trading or a capital transaction is a matter that will be resolved in due course before the TAC. The outcome of that is far from certain.
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