Shire surprises Takeda with €398M tax bill on long-ago AbbVie breakup fee

Takeda management has been touting its ability to quickly lower debt incurred in the humongous Shire buyout. But that process may be hampered by an unexpected tax bill inherited in the deal.

Irish authorities have demanded Takeda cough up an additional €398 million ($443 million) in tax. The basis? A $1.64 billion breakup fee AbbVie paid Shire in 2014 after scrapping their $55 billion merger.

Ireland’s Revenue Commissioners sent out the request weeks before Takeda’s Shire deal was wrapped up last January, the Japanese pharma first unveiled in a U.S. securities filing in December 2018. 

"The continued legal guidance and advice we have received is that we are not liable for the tax on the break fee under Irish law. We have appealed this assessment and the appeals process is continuing," a company spokesperson told FiercePharma.

AbbVie walked away from the takeover after the Obama administration created new regulations to deter tax inversion deals. The Illinois pharma had planned the Shire deal in part to reduce its corporate tax burden by moving its headquarters to Ireland.

Back then, Shire said it didn’t expect the payment to be taxable in Ireland, even though it had not received formal confirmation from authorities. Now, five years later, the $1.64 billion windfall has come back to haunt Shire’s buyer Takeda when an additional financial obligation is probably the last thing the Japanese drugmaker wants to see.

Takeda’s trying to pare down its debt load by jettisoning non-core assets outside of its focus areas, including offloading Shire’s dry eye drug Xiidra to Novartis for $3.4 billion upfront.

Over the six months ended last September, before it could count the cash from many of those selloffs, the company had already paid off JPY 584.5 billion ($5.32 billion) of debt and lowered its net debt/EBITDA ratio to 3.9x from 4.7x at the end of March.

Although the Irish tax bill won’t hurt its pretax earnings if it goes through, it will cut into the cash available to pay down debt.

RELATED: Another hit for AbbVie: Unexpected $673M Irish tax bill adds to Allergan merger woes

Despite its reputation as a tax haven—the very reason Shire moved its headquarters from the U.K. in 2008—Ireland has slapped several unexpected tax charges on biopharma companies’ M&A deals.

In late 2018, Irish tax officials asked that Perrigo pay back €1.64 billion ($2.13 billion). It found that Perrigo subsidiary Elan Pharma had miscalculated a tax rate related to its 2013 transaction with Biogen over multiple sclerosis drug Tysabri.

Just weeks ago, AbbVie was targeted unwittingly by a new Irish regulation in its planned $63 billion acquisition of Ireland-based Allergan. As a result, it faces a 1% Irish stamp duty bill that in its case equals €572 million ($743 million).