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Income Taxes | 9 Months Ended
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Sep. 26, 2020
Income Tax Disclosure [Abstract] |
Income Taxes | INCOME TAXES The effective tax rates were as follows:
Three Months Ended |  | Nine Months Ended
September 26, 2020 |  | September 28, 2019 |  | September 26, 2020 |  | September 28, 2019
(21.1 | )% |  | 5.2 | % |  | 78.9 | % |  | 19.6 | %
The effective tax rate for the three and nine months ended September 26, 2020 increased compared to the prior period primarily due to non-deductible goodwill impairments and Base Erosion and Anti-Abuse Tax ("BEAT"), offset by additional interest deductions provided for in the U.S. Coronavirus Aid, Relief, and Economic Security ("CARES") Act and the early adoption of the final and proposed business interest expense deduction limitation regulations in the current period. The Tax Cuts and Jobs Act of 2017 introduced a new tax on U.S. corporations that derive benefits from certain deductible payments to non-U.S. affiliates called the Base Erosion and Anti-Abuse Tax ("BEAT"). BEAT applies when base eroding payments exceed three percent of total deductions and where BEAT exceeds adjusted regular income tax. We recorded a valuation allowance against all U.S. deferred tax assets as of December 31, 2016. We have continued to maintain a full valuation allowance against all U.S. deferred tax assets since and intend to continue maintaining this valuation allowance until there is sufficient evidence to support the reversal of all or some portion of these allowances. Given our current earnings and anticipated future earnings, we believe there is a reasonable possibility that within the next twelve months, sufficient positive evidence may become available that all or a portion of the valuation allowance against the U.S. deferred tax assets will no longer be needed. Release of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease to income tax expense in the period of the release. The exact timing and amount of the valuation allowance release are subject to change on the basis of the level of profitability that we actually achieve. IRS Audit of Fiscal Years Ended June 29, 2013, June 28, 2014, and June 27, 2015 In connection with its audits of Perrigo Company, a Michigan corporation and wholly-owned indirect subsidiary of Perrigo Company plc, for the fiscal years ended June 29, 2013, June 28, 2014, and June 27, 2015 the IRS issued a draft Notice of Proposed Adjustment ("NOPA") on August 22, 2019, reducing Perrigo Company’s deductible interest expense for fiscal tax years 2014-2015 on $7.5 billion in debts owed by it to Perrigo Company plc. A final NOPA was issued in early May 2020 without change. The debts were incurred in connection with the Elan merger transaction in 2013. The final NOPA caps the interest rate on the debts for U.S. federal tax purposes at 130.0% of the Applicable Federal Rate (a blended rate reduction of 4.0% per annum), on the stated ground that the loans were not negotiated on an arms’-length basis. The final NOPA proposes a reduction in gross interest expense of approximately $480.0 million for fiscal years 2014 and 2015. If the IRS were to prevail in its proposed adjustment, the Company estimates an increase in tax expense of approximately $170.0 million, excluding interest and penalties, for fiscal years ended June 28, 2014 through June 27, 2015. In addition, we expect the IRS to seek similar adjustments for the period from June 28, 2015 through December 31, 2018 with potential section 163(j) carryover impacts beyond December 2018. If those further adjustments were sustained, based on preliminary calculations and subject to further analysis, the Company's current best estimate is that the additional tax expense will not exceed $200.0 million, excluding interest and penalties. No further adjustments beyond this period are expected. The Company strongly disagrees with the IRS position, as reflected in its detailed written response to the draft NOPA on September 20, 2019. At this stage, we are unable to estimate the liability, if any, associated with this matter. IRS Audit of Fiscal Years ended June 27, 2009, June 26, 2010, June 25, 2011, and June 30, 2012 On August 15, 2017, we filed a complaint in the United States District Court for the Western District of Michigan to recover $163.6 million of Federal income tax, penalties, and interest assessed and collected by the IRS, plus statutory interest thereon from the dates of payment, for the fiscal tax years ended June 27, 2009, June 26, 2010, June 25, 2011, and June 30, 2012 (the “2009 tax year,” “2010 tax year,” “2011 tax year,” and “2012 tax year,” respectively). In response to our complaint, the United States District Court for Western District of Michigan scheduled a new trial date for January 26, 2021. The IRS audits of those years culminated in the issuances of two statutory notices of deficiency: (1) on August 27, 2014 for the 2009 and 2010 tax years and (2) on April 20, 2017 for the 2011 and 2012 tax years. The statutory notices of deficiency both included un-agreed income adjustments related principally to transfer pricing adjustments regarding the purchase, distribution, and sale of store-brand OTC pharmaceutical products in the United States. In addition, the statutory notice of deficiency for the 2011 and 2012 tax years included the capitalization of certain expenses that were deducted when paid or incurred in defending against certain patent infringement lawsuits. We fully paid the assessed amounts of tax, interest, and penalties set forth in the statutory notices and filed timely claims for refund on June 11, 2015 and June 7, 2017 for the 2009-2010 tax years and 2011-2012 tax years, respectively. Upon the disallowance of such refund claims, we timely filed the above complaint, which seeks refunds of tax, interest, and penalties of $37.2 million for the 2009 tax year, $61.5 million for the 2010 tax year, $40.2 million for the 2011 tax year, and $24.7 million for the 2012 tax year, for a total of $163.6 million. The amounts sought in the complaint for the 2009 and 2010 tax years were recorded as deferred charges in Other non-current assets on our balance sheet during the three months ended March 28, 2015, and the amounts sought in the complaint for the 2011 and 2012 tax years were recorded as deferred charges in Other non-current assets on our balance sheet during the three months ended July 1, 2017. The total cumulative deferred charge that the Company is seeking to receive in this litigation is approximately $101.8 million, which reflects (i) a deduction of $29.7 million from the total reflected above due to overpayments credited to succeeding years and (ii) the impact of a previously conceded royalty due to Perrigo U.S. on all omeprazole sales that equates to 24.0% of the above refund claims. That 24.0% concession would also apply to any omeprazole adjustments that may be asserted by the IRS for future years. IRS Audit of Fiscal Years Ended December 31, 2011, December 31, 2012, and December 31, 2013 On April 26, 2019, we received a revised NOPA from the IRS regarding transfer pricing positions related to the IRS audit of Athena Neurosciences, Inc. ("Athena") for the years ended December 31, 2011, December 31, 2012, and December 31, 2013. The NOPA carries forward the IRS's theory from its 2017 draft NOPA that when Elan took over the future funding of Athena's in-process research and development after acquiring Athena in 1996, Elan should have paid a substantially higher royalty rate for the right to exploit Athena’s intellectual property, rather than rates based on transfer pricing documentation prepared by Elan's external tax advisors. The NOPA proposes a payment of $843.0 million, which represents additional tax and a 40.0% penalty. This amount excludes consideration of offsetting tax attributes and any potential interest that may be imposed. We strongly disagree with the IRS position and will pursue all available administrative and judicial remedies, including those available under the U.S. - Ireland Income Tax Treaty to alleviate double taxation. Accordingly, on April 14, 2020, we filed a request for Competent Authority Assistance with the IRS. The request was accepted and is under review. No payment of the additional amounts is required until the matter is resolved administratively, judicially, or through treaty negotiation. On December 22, 2016, we received a NOPA from the IRS regarding the deductibility of litigation costs related to the IRS audit of Athena for the years ended December 31, 2011, December 31, 2012, and December 31, 2013. We strongly disagree with the IRS’s position asserted in the NOPA and are contesting it. Irish Revenue Audit of Fiscal Years Ended December 31, 2012 and December 31, 2013 On October 30, 2018, we received an audit finding letter from the Irish Office of the Revenue Commissioners (“Irish Revenue”) for the years ended December 31, 2012 and December 31, 2013. The audit finding letter relates to the tax treatment of the 2013 sale of the Tysabri® intellectual property and other assets related to Tysabri® to Biogen Idec from Elan Pharma. The consideration paid by Biogen to Elan Pharma took the form of an upfront payment and future contingent royalty payments. Irish Revenue issued a Notice of Amended Assessment (“NoA”) on November 29, 2018 which assesses an Irish corporation tax liability against Elan Pharma in the amount of €1,636 million, not including interest or any applicable penalties. We strongly disagree with this assessment and believe that the NoA is without merit and incorrect as a matter of law. We will pursue all available administrative and judicial avenues as may be necessary or appropriate. In connection with that, we filed an appeal of the NoA on December 27, 2018 in the Tax Appeals Commission which is the statutory body charged with considering whether the NoA is properly founded as a matter of tax law. Separately, we were also granted leave by the Irish High Court on February 25, 2019 to seek judicial review of the issuance of the NoA by Irish Revenue. The judicial review case is based on our belief that, by issuing the NoA, Irish Revenue breached Elan Pharma's rights and legitimate expectations as a taxpayer. The Irish High Court heard the judicial review case in June 2020 and, on November 4, 2020, the High Court ruled that the issuance of the NoA did not violate the Company’s rights and legitimate expectations. Because the Irish High Court did not quash the NoA, absent an appeal by Elan Pharma, the amended assessment can be examined on its merits by the Irish Tax Appeals Commission. Our case before the Irish Tax Appeals Commission has been stayed since February 2019 by Order of the Irish High Court pending determination of the judicial review case. We will now assess the Irish High Court's decision before deciding whether to pursue an appeal of the judicial review case to the Irish Court of Appeal or reactivate our appeal before the Tax Appeals Commission. Any appeal against the judgment of the High Court in the judicial review case would have to be filed within 28 days of the Order made by the High Court consequent upon the judgment delivered on November 4, 2020. That Court Order is expected to be made within a period of weeks once the question of liability for the litigation costs of the judicial review case has been decided by the High Court. No payment will be required unless both the judicial review case and the appeal pending before the Tax Appeals Commission are finally determined against Elan Pharma. Israel Tax Authority Audit of Fiscal Year Ended June 27, 2015 and Calendar Years Ended December 31, 2015 through December 31, 2017 The Israel Tax Authority is auditing our fiscal year ended June 27, 2015, and calendar years ended December 31, 2015, December 31, 2016 and December 31, 2017. Although we believe that our tax estimates are reasonable and that we prepare our tax filings in accordance with all applicable tax laws, the final determination with respect to any tax audit and any related litigation could be materially different from our estimates or from our historical income tax provisions and accruals. The results of an audit or litigation could have a material effect on operating results and/or cash flows in the periods for which that determination is made. In addition, future period earnings may be adversely impacted by litigation costs, settlements, penalties, and/or interest assessments, which could be material. Based on the final resolution of tax examinations, judicial or administrative proceedings, changes in facts or law, expirations of statute of limitations in specific jurisdictions or other resolutions of, or changes in, tax positions - one or more of which may occur within the next twelve months - it is reasonably possible that unrecognized tax benefits for certain tax positions taken on previously filed tax returns may change materially from those recorded as of September 26, 2020. However, we are not able to estimate a reasonably possible range of how these events may impact our unrecognized tax benefits in the next twelve months.

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