Clark Armitage Comments on Perrigo Ruling in Bloomberg Law

The IRS’s defeat in a long-running dispute with pharmaceutical maker Perrigo Co. threatens to muddle the agency’s campaign to wield the controversial economic substance doctrine against taxpayers in transfer pricing audits.

The US District Court for the Western District of Michigan handed Perrigo a big win in saying that transactions with a subsidiary in Israel didn’t lack economic substance as the IRS had argued, but had a business purpose other than tax planning.

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Caplin & Drysdale Member Clark Armitage said it would be tough for the agency to win if it were to appeal. The findings of fact “are pretty damning to the IRS case,” he said, and these can only be reversed for clear errors.

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Critics of the GLAM say that is exactly what that memo does.

Armitage said “the court refused to use actual profits when contemporaneous projections existed and the taxpayer had not tried to hide the ball. Overall, the decision is a sound rejection of the recent IRS GLAM on periodic adjustments.”

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