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Schering-Plough Loses $473 million Tax Dispute

Wed, 09/02/2009 - 7:41am
TRENTON, N.J. (AP) — Schering-Plough Corp. has been denied a $473 million tax refund by a federal judge who ruled the company made two transactions just to avoid paying taxes on $690 million in profits from overseas subsidiaries. The money was repatriated, or brought back into the U.S. However, U.S. District Judge Katherine S. Hayden in Newark, N.J., found Schering-Plough owed taxes on it, the Justice Department said in a statement distributed Wednesday. A company spokesman said Schering-Plough is considering an appeal. The transactions, which occurred in 1991 and 1992, involved interest rate swap agreements created by Merrill Lynch, financial adviser to Schering-Plough, a maker of hepatitis treatments and allergy drugs including Nasonex and Clarinex. "The transactions were designed to bring previously untaxed profits made by Schering-Plough's foreign subsidiaries into the United States without paying the tax owed on repatriation," the statement said. It said the court found "the transactions lacked economic substance, did not have a genuine business purpose, and were designed to avoid tax." According to a filing with the Securities and Exchange Commission this spring, the case dates to October 2001, when Internal Revenue Service auditors asserted that the transactions were really loans from affiliated companies. In 2004, Schering-Plough paid the IRS $194 million for income tax and $279 million in interests — the $473 million total — but then sought a refund of that amount. After the IRS denied the refund request, Schering-Plough sued in federal court in Newark, leading to the latest ruling. "We disagree with the court's decision and are considering our options, including appealing the decision," Schering-Plough spokesman Fred Malley said. Schering-Plough, based in Kenilworth, N.J., is in the process of being acquired by New Jersey neighbor Merck & Co. for $41.1 billion, in a deal that would leapfrog the new drugmaker into the No. 2 position in global sales.

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