A €1.64bn tax assessment raised on drug company Perrigo by the Revenue Commissioners involved a "very high level of unfairness" and came as a "surprise", not just to Perrigo but the "entire tax community in Ireland", the High Court has been told.
Irish-headquartered Perrigo is challenging that 2018 assessment in proceedings against the Revenue which opened via video-link yesterday before Mr Justice Denis McDonald.
Revenue maintains Perrigo owes the €1.64bn 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.
Perrigo bought Elan in 2013 by way of corporate inversion, involving foreign companies reversing themselves into Irish businesses to secure an Irish domicile and a lower corporate tax rate.
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, taxable at 33pc.
Perrigo treated it as tradable income in its Irish tax return, subject to a 12.5pc tax rate, and maintains this is consistent with how Elan reported the purchase and sale of intellectual property (IP) rights to medicines over two decades without challenge by Revenue.
The Revenue treatment of Elan's returns over years meant Perrigo had a "legitimate expectation" as a taxpayer it should be able to account for the Tysabri sale as trading income, it claims.
Outlining Perrigo's case, Paul Sreenan SC, disputed suggestions its challenge to the assessment goes to the heart of the self-assessment system of taxation.
Counsel said its claim is "wholly exceptional" and "unique" because it was the only case ever involving the Revenue going back on a Shannon Free Trade Area tax certificate (STC) in refusing to accept the 2013 disposal of Tysabri did not qualify for trading treatment and should be treated as chargeable Capital Gains Tax. He said that this was contrary to Perrigo's legitimate expectation arising from an STC of 2002, backdated to 1995, and also from guidance, representations and the conduct of Revenue after the STC expired in 2005, including a 2005 finding of tax compliance.
The LCD acknowledged the need for tax certainty and there was less willingness to countenance "surprise" from investigations by Revenue or other inquiries, he said.
The case continues today and is listed to run for eight days.