Teva has reaped plenty of tax benefits from its home country of Israel in recent years. But now the Israeli government reportedly wants some of that money back.
Israel’s tax authority intends to require the company to fork over more than NIS $1 billion ($271 million) in retroactive tax for 2014-2015, sources told Israeli newspaper Calcalist. The generics giant did pay taxes during that timeframe, but the local tax body is after further payments, the publication said.
A Teva spokeswoman did not return a request for comment by press time.
When it comes to taxes, Teva has enjoyed privileged status in Israel for years. The company, one of Israel’s largest employers, didn’t pay taxes at all for the decade preceding 2014, Calcalist notes, allowing it to keep NIS 20.6 billion ($5.58 billion) in its pockets. Public criticism eventually ended that tax-free streak, but it’s since benefited from a lower corporate tax rate thanks to legislation meant to boost capital investments in Israel.
Those Israeli tax gifts made Teva’s $3 billion cost-cutting drive that much harder to swallow for locals, who rallied hard in late 2017 against the company’s plans to cut more than 3,000 jobs in the country.
Meanwhile, a retroactive tax bill would hit Teva at a time when it’s working to dig itself out of a major debt hole it landed in after now-departed execs inked an ill-fated $40-billion-plus deal for Allergan’s generics unit. At last week’s J.P. Morgan Healthcare Conference, CEO Kåre Schultz reassured investors that Teva was “very much on track” with its cost-cutting plans and had whittled its debt down to $27.6 billion from $35 billion over the last nine months.
Teva would need to appeal to an Israeli court to avoid paying the tab if tax authorities do ultimately demand it, Calcalist said.
If a tax surprise from a pharma’s home country sounds familiar, it’s because Perrigo ran into one just at the end of last year when the Irish Office of the Revenue Commissioners asserted that the company owed €1.64 billion in back taxes.
“We don’t have a clear understanding yet on why they believe 20 years of filings are wrong,” but “we believe ultimately we will win,” new CEO Murray Kessler said at JPM.