One day in late November, a surprise caller turned up at PerrigoCo Plc's Dublin headquarters, close to the city's so-calledGoogletown neighborhood.

Informed that the drug maker's CFO Ron Winowiecki wasn't around,the visitor dropped off a letter at its second-floor office in theTreasury Building, famed for “Aspiration,” the sculpture of a nakedwoman scaling its exterior walls. Inside the envelope was a taxdemand for a whopping 1.6 billion euros (US$1.8 billion), thesecond-largest in Irish history, according to an account of theepisode given to the government.

Weeks later, Perrigo revealed the assessment to shockedinvestors, sending its shares plunging 29 percent. That cameshortly after Analog Devices Inc. told its shareholders the companyfaces a much smaller, but potentially significant, tax battle ofits own with Ireland. Taken together, the cases may signal thatIreland is taking a tougher line with U.S. companies using thenation to lower its taxes and as a gateway to Europe.

“There is a more challenging environment out there,” says JoeTynan, head of tax at PWC Ireland in Dublin. “Tax authorities areasking tougher questions and are less accepting of theanswers.”

While the nation's tax authority didn't say whether there hadbeen a change in its approach, it noted in an email response to arequest for comment that multinationals “are subject to the samelevel of risk analysis and intervention scrutiny as any othercommercial entity.”

Trend Emerging?

Investment professionals are worried, though many are waitingfor a third case to emerge before reaching a definitiveconclusion.

“There may be political reasons—tax authorities are keen to showthey are treating all taxpayers the same,” Tynan says. “Thatdoesn't apply just in Ireland; we are seeing itglobally.”

Ireland is batting against a perception that it's a tax haven.In 2017, President Donald Trump named it as a key country drawingU.S. firms in search of lower taxes. Ireland has felt pressure fromEurope, too. In 2018, the corporate tax rate in Ireland was 12.5percent, compared with a European Union (EU) average of about 21.9percent, European Commission figures show.

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

In all, about 20 percent of all Irish workers areemployed—either directly or indirectly—by 700 U.S. firms pepperedaround Ireland, according to the American Chamber of Commerce. Onearea close to the south docks in Dublin is dubbed Googletown, toreflect the search giant's sprawling campus.

Just around the corner is Perrigo's global headquarters. Sixyears ago, the maker of the pain-reliever Solpadeine bought theIrish biotechnology firm Elan and moved its base to Dublin to enjoylower tax rates.

Months earlier, Elan had sold intellectual property tied toTysabri, a treatment for multiple sclerosis, to Biogen Inc. Perrigotreated revenue from the sale as trading income, which is taxed at12.5 percent. Irish authorities say it should be treated as“chargeable gains” and taxed at 33 percent. Ireland made thisdemand just before a five-year statutory limitation periodended.

In filings just before Christmas 2018, the drugmaker vowed tofight the finding, which it called “incorrect and withoutmerit.”

A month earlier, Irish officials told chipmaker Analog that itowed about 43 million euros linked to intercompany transfersstretching back to 2013. Norwood, Massachusetts-based Analog, whichemploys around 1,200 people in Ireland's southwest, also promisedinvestors 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 topush on with some hires, according to a person familiar, who askednot to be named because the matter is private. Perrigo'soperational base is in Michigan, with about 180 people employed inIreland.

The numbers employed by overseas firms operating in Ireland roseto a record last year, according to IDA Ireland, which isresponsible for attracting investment. On Friday, Salesforce.comInc. laid out one of the biggest jobs expansions in the nation'shistory, 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 InvestorsService analyst Sarah Carlson, who covers Ireland, said in aninterview in Dublin on Tuesday. “Watching corporate tax policy inEurope and U.S. is important. It's a risk we are well awareof.”

From: Bloomberg

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