Officials Balked at a Drug Company’s Tax Shelter. Auditors Approved It Anyway.

In June 2008, auditors at BDO expressed concerns about the tax plan that EY and Perrigo had devised, according to internal EY records made public during the litigation with the I.R.S. The auditors told Bill DeGood, Perrigo’s international tax director and himself a former EY employee, that they were worried about how Perrigo was divvying up the profits between Israel and the United States. If too much profit was going to the untaxed Israeli subsidiary, that could translate into an artificially low U.S. tax bill.

The BDO auditors noted that the arrangement “may be challenged by the I.R.S.,” according to an internal EY memo. The auditors proposed a more conservative method to allocate profits between the United States and abroad.

Perrigo executives enlisted officials at EY to defend the structure of the tax setup.

Two months later, BDO signed off on Perrigo’s financial statements for that year. It isn’t clear whether or how the auditors’ concerns were resolved.

By then, though, Perrigo had already decided to drop BDO as its auditor and to hire EY as a replacement.

Soon, even some EY officials voiced doubts about Perrigo’s offshore tax arrangements.

Derek Burgess, a tax consultant in EY’s office in Grand Rapids, Mich., concluded along with some of his colleagues that Perrigo was pushing too much profit into the Israeli subsidiary — thus potentially underpaying its U.S. taxes. He was especially concerned because EY would have to sign off on Perrigo’s tax return, potentially exposing the accounting firm to liability, too, if Perrigo were later found to have underpaid taxes.

In February 2009, Mr. Burgess was preparing for a visit a few days later to Perrigo’s headquarters and was unsure how to proceed.

Article source: https://www.nytimes.com/2022/07/07/business/perrigo-omeprazole-taxes-ey.html