As I had earlier speculated, it seems at least some of Schering-Plough's more strident remarks -- about the perceived unfairness of the holding in the Textron case, had something to do with the dubious merits of Schering-Plough's request for a $473 million tax refund -- in a transaction related to efforts to avoid paying taxes on $690 million in overseas profits it had repatriated, from Schering's offshore subsidiaries, in 1991 and 1992.
Schering-Plough's SEC Form 10-K language on it, updated, and then followed by the AP Wire quote, from the DoJ, today:
. . . .In October 2001, IRS auditors asserted that two interest rate swaps that Schering-Plough entered into with an unrelated party should be recharacterized as loans from affiliated companies, resulting in additional tax liability for the 1991 and 1992 tax years. In September 2004, Schering-Plough made payments to the IRS in the amount of $194 million for income tax and $279 million for interest. Schering-Plough filed refund claims for the tax and interest with the IRS in December 2004. Following the IRS’s denial of Schering-Plough’s claims for a refund, Schering-Plough filed suit in May 2005 in the U.S. District Court for the District of New Jersey for refund of the full amount of the tax and interest. This refund litigation has been tried in Newark District court and a decision has
not yetnow been rendered. . . . ~~~~~~~~~~~~~
. . . .The Justice Department said Monday that in rejecting the refund request, the court found that the transactions "lacked economic substance, did not have a genuine business purpose, and were designed to avoid tax. . . ."
[From the Court's opinion, then:]
. . . .Furthermore, the transactions had no appreciable economic effect on the parties, and Schering-Plough lacked sufficient subjective non-tax motivations for entering into them; it therefore cannot reap the benefit of the tax-driven vehicle. Finally, by repatriating $690 million in offshore earnings, Schering-Plough cannot avoid -- under the pretext of Notice 89-21 -- the obvious intent of Congress to capture a portion of such sums under Subpart F.
Ouch. Here's the full text of the 91 page decision, as a PDF file. We'll let you know if Schering-Plough files an appeal of the ruling. Sincere hat tip to the TaxProfBlog -- a fine blog here, for the link and the PDF -- I didn't see his, until tonight.