The U.S. Court of Appeals in Philadelphia has upheld an IRS ruling against Schering Plough, which leaves Merck with a $473 million IRS bill.
The case stemmed from an interest rate swap with two of its Irish subsidiaries that was devised with help from Merrill Lynch nearly two decades ago, but the $473 million ruling only hit the books four years ago. Schering Plough argued that the money associated with two interest-swap transactions wasn't taxable, and that other companies in similar situations weren't required to pay taxes on the proceeds.
"If taxpayers could routinely challenge tax assessments by pointing to others who had not been compelled to pay under similar circumstances, the IRS would be swamped by collateral litigation of this kind rather than being able to focus on whether the taxpayer actually complied with the law," Judge Juilo M. Fuentes wrote for the unanimous judge panel, according to Bloomberg.
Schering Plough also argued that the IRS was acting inappropriately because of previous tax evasion issues.
"The chutzpah of this argument is notable," the ruling noted, as quoted by Pharmalot. "To the extent that the IRS pursued Schering-Plough more vigorously because Schering-Plough had a history of failing to comply with the tax laws, this represents commendable agency diligence in the light of past experience, not some kind of impermissible bias against Schering-Plough. Schering-Plough offers no persuasive basis for us to order further discovery"