The Dublin Tax Inspector Is Spooking Investors

(Bloomberg) -- One day in late November, a surprise caller turned up at Perrigo Co Plc’s Dublin headquarters, close to the city’s so-called Googletown neighborhood.

Informed that the drug maker’s Chief Financial Officer Ron Winowiecki wasn’t around, the visitor dropped off a letter at its second-floor office in the Treasury Building, famed for “Aspiration,” the sculpture of a naked woman scaling its exterior walls. Inside the envelope was a tax demand for a whopping 1.6 billion euros ($1.8 billion), the second-largest in Irish history, according to an account of the episode given to the government.

Weeks later, Perrigo revealed the assessment to shocked investors, sending its shares plunging 29 percent. That came shortly after Analog Devices Inc. told its shareholders the company faces a much smaller, but potentially significant, tax battle of its own with Ireland. Taken together, the cases may signal a tougher line Ireland is taking with U.S. companies using the nation to lower its taxes and as a gateway to Europe.

“There is a more challenging environment out there,” said Joe Tynan, head of tax at PWC Ireland in Dublin. “Tax authorities are asking tougher questions and are less accepting of the answers.”

While the nation’s tax authority didn’t say whether there had been a change in its approach, it noted in an email response for comment that multinationals “are subject to the same level of risk analysis and intervention scrutiny as any other commercial entity.”

Trend Emerging?

Investment professionals are worried, though many are waiting for a third case to emerge before reaching a definitive conclusion.

“There may be political reasons -- tax authorities are keen to show they are treating all tax payers the same,” said Tynan. “That just doesn’t apply in Ireland, we are seeing it globally.”

Ireland is batting against a perception it’s a tax haven -- in 2017, President Donald Trump named it as a key country drawing U.S. firms in search of lower taxes. From Europe, too, there’s been pressure. In 2018, the corporate tax rate in Ireland was 12.5 percent, compared with an EU average of about 21.9 percent, European Commission figures show.

The Commission ordered Ireland to recover 13 billion euros in arrears from Apple Inc., and the government has been one of the leading opponents of a digital tax France is pushing.

Perrigo Case

In all, about 20 percent of all Irish workers are employed, either directly or indirectly, in 700 U.S. firms peppered around Ireland, according to the American Chamber of Commerce. One area, close to the south docks in Dublin is dubbed Googletown, to reflect the search giant’s sprawling campus.

Just around the corner is Perrigo’s global headquarters. Six years ago, the maker of pain-reliever Solpadeine bought the Irish biotechnology firm Elan and moved its base to Dublin to enjoy lower tax rates.

Months earlier, Elan had sold intellectual property tied to Tysabri, a treatment for multiple sclerosis to Biogen Inc. Perrigo treated revenue from the sale as trading income, which is taxed at 12.5 percent. Irish authorities say it should be treated as “chargeable gains” and taxed at 33 percent -- and made the demand just before a five-year statutory limitation period ended.

In filings just before Christmas, the drugmaker vowed to fight the finding, which it called “incorrect and without merit.”

A month earlier, Irish officials told chipmaker Analog that it owed about 43 million euros linked to inter-company transfers stretching back to 2013. Norwood, Massachusetts-based Analog, which employs around 1,200 people in Ireland’s south-west, also promised investors it would fight the case.

Investment Fear

For Ireland, the question is: will investment be hurt?

Perrigo reviewed plans to add jobs in Dublin before electing to push on with some hires, according to a person familiar, who asked not to be named because the matter is private. Perrigo’s operational base is in Michigan, with about 180 people employed in Ireland.

The numbers employed by overseas firms operating in Ireland rose to a record last year, according to IDA Ireland, which is responsible for attracting investment. On Friday, Salesforce.com Inc. laid out one of the biggest jobs expansions in the nation’s history, as it prepares to add about 1,500 Irish jobs.

Yet, the tax question isn’t going away.

Tax “is one of the features that makes Ireland so competitive, so of course, it’s going to remain in focus,” Moody’s Investors Service analyst Sarah Carlson, who covers Ireland, said, in an interview in Dublin on Tuesday. “Watching corporate tax policy in Europe and U.S. is important. It’s a risk we are well aware off. ”

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