Perrigo Pharma International DAC v McNamara & Ors (Approved)

Factual and Procedural Background

These judicial review proceedings were initiated by the Applicant, a pharmaceutical company, challenging the legality of a notice of amended assessment issued by an inspector of taxes for the 2013 accounting period. The amended assessment, amounting to over €1.6 billion, arose from the Revenue Commissioners' audit findings concerning the classification of a transaction involving the disposal of intellectual property rights ("IP"). The Revenue contended the transaction should be treated as a capital, rather than a trading, transaction, attracting a higher tax rate. The Applicant appealed this notice to the Tax Appeal Commission (TAC) but sought judicial review asserting that the amended assessment should not have been issued.

The Applicant's claims are grounded on three main bases: (a) breach of legitimate expectations, (b) abuse of power due to unfairness, and (c) infringement of constitutionally protected property rights. The legitimate expectation claim is subdivided into four categories of representations alleged to have been made by the Respondents over more than a decade. The proceedings were conducted on affidavit evidence without cross-examination of deponents.

Legal Issues Presented

1. Whether the Applicant had a legitimate expectation, based on representations, that disposals of intellectual property would be treated as trading transactions for tax purposes.
2. Whether the Revenue Commissioners' retrospective reclassification of IP disposals amounts to an abuse of power or unfair exercise of discretion.
3. Whether the amended assessment infringes the Applicant's constitutional property rights.
4. The proper interpretation of the statutory provisions governing trading operations and certificates under section 445 of the Taxes Consolidation Act, 1997.
5. The extent of the Revenue Commissioners' power to reassess corporation tax returns under the self-assessment regime and applicable limitation periods.

Arguments of the Parties

Applicant's Arguments

• The Shannon Certificate issued by the Minister represented that intellectual property disposals would be treated as trading transactions, creating a legitimate expectation that such treatment would continue.
• Tax Briefing Issue 57 (TB 57) issued by the Revenue confirmed that trading activities meeting the certificate requirements would qualify for the 12.5% corporation tax rate after the expiry of the Shannon regime, reinforcing the Applicant’s expectation.
• The long course of dealings between the Applicant and the Revenue, including the submission of tax returns and financial statements treating IP disposals as trading transactions without objection, amounts to an implied representation that such treatment was accepted.
• The Revenue's audit findings letter and subsequent amended assessment are unfair, amounting to an abuse of power, especially given the significant costs and difficulties the Applicant faces in challenging the assessment.
• The amended assessment constitutes an unjust attack on the Applicant’s constitutionally protected property rights.

Respondents' Arguments

• The Shannon Certificate and TB 57 do not constitute representations that all IP disposals are trading transactions; the certificate expressly qualifies that the question of whether operations are trading is a matter of fact to be determined after the events.
• The Applicant’s interpretation of the certificate’s terms is incorrect; the certificate limits intellectual property rights management to licensing, sublicensing, distribution, research and development, or similar arrangements, not outright disposals.
• The Revenue’s acceptance of tax returns and issuance of assessments does not amount to approval or representation that the tax treatment is correct; the Revenue retains the statutory right to reassess within the four-year limitation period.
• The Revenue did not review or audit the corporation tax returns relating to IP disposals until 2016, and prior non-intervention does not imply acceptance of the Applicant’s tax treatment.
• The statutory self-assessment regime allows the Revenue to reopen assessments within statutory time limits, and the Applicant’s reliance on prior non-objection is misplaced.
• The audit findings letter’s recharacterisation of IP disposals is based on specific features of the transactions, including contractual restrictions and accounting treatment, which are matters for the TAC to determine.
• The claim of abuse of power is not supported; the Revenue acted lawfully within statutory powers and the case differs significantly from the UK Unilever case relied upon by the Applicant.
• The constitutional claim fails as it relies on the same material as the legitimate expectation and abuse of power claims, which have been rejected.

Table of Precedents Cited

Court's Reasoning and Analysis

The court undertook a detailed examination of each element of the Applicant’s legitimate expectation claim, beginning with the Shannon Certificate. It found that the certificate’s terms, read objectively and in context, limited intellectual property rights management to licensing, sublicensing, distribution, research and development, or similar arrangements, and did not extend to outright disposals of intellectual property. The extensive application process and correspondence confirmed this narrower interpretation. The certificate also contained a proviso explicitly stating that whether any activity constitutes trading is a matter of fact to be determined after the event, which the court held was not a mere footnote but a substantive qualification consistent with statutory provisions.

Turning to TB 57, the court found that it did not constitute a representation that all activities of Shannon certificate holders would be treated as trading for tax purposes. Rather, it reiterated that the question of trading status is fact-specific and subject to case-by-case analysis, including possible Revenue audits and differing views.

The court then considered the Applicant’s argument based on the course of dealings with the Revenue, including the submission of tax returns and financial statements treating IP disposals as trading transactions without objection. The court accepted the Revenue’s evidence that no detailed interrogation or audit of the corporation tax returns occurred prior to 2016 and that acceptance of returns did not amount to approval or representation of correctness. The court emphasized the statutory framework, highlighting the Revenue’s ongoing power to amend assessments within statutory time limits, and rejected the notion that prior non-objection constituted a binding representation.

Regarding the alleged abuse of power, the court distinguished the present case from the UK Unilever case, noting the absence of a settled practice or mutual oversight here. It also referred to UK Supreme Court authority that simple unfairness is not a ground for judicial review of lawful administrative discretion. The court found no evidence of procedural unfairness akin to that in Keogh and concluded that the Revenue’s exercise of statutory powers was lawful and fair.

Lastly, the court addressed the constitutional claim, finding it to be entirely dependent on the failure of the legitimate expectation and abuse of power claims, which were dismissed. The court concluded that the constitutional argument also fails.

Throughout the analysis, the court underscored the importance of the statutory self-assessment regime, the four-year limitation period for amended assessments, and the necessity for individual factual determinations regarding whether particular transactions constitute trading. The court recognized that the ultimate question of the characterisation of the disposal of the Tysabri IP as trading or capital is for the Tax Appeal Commission to decide after a full inter partes hearing.

Holding and Implications

The court's final decision is to DISMISS the Applicant’s judicial review challenge to the amended assessment issued by the Revenue Commissioners in respect of the 2013 disposal of the Tysabri intellectual property rights.

The court held that the Applicant failed to establish any representation by the Respondents giving rise to a legitimate expectation that the transaction would be treated as trading for tax purposes. The court also found no basis for a claim of abuse of power or constitutional infringement. The statutory framework governing tax assessments, including the Revenue’s power to reassess within limitation periods, was upheld.

The direct effect of this decision is that the amended assessment stands and the Applicant must pursue its appeal against the classification of the transaction through the Tax Appeal Commission. No new legal precedent was established beyond the application of existing principles to the facts of this case.