Merck Loses Bid To Recoup $473 Million In U.S.

A federal appeals court rejected Merck & Co's bid for a new trial to obtain $472.9 million of federal income tax refunds that the drugmaker believes it deserves.

The 3rd U.S. Circuit Court of Appeals unanimously upheld a 2008 ruling by U.S. District Judge Katharine Hayden in Newark, New Jersey against Schering-Plough Corp, which Merck bought the following year for roughly $45.9 billion.

Schering had sought to recoup income taxes assessed for the 1989, 1991 and 1992 tax years.

It argued that funds it received as a result of interest rate swaps arranged by foreign units were not taxable, and that the Internal Revenue Service unfairly treated it differently from another taxpayer that engaged in similar transactions.

But in writing for the 3rd Circuit, which sits in Philadelphia, Judge Julio Fuentes said the transactions were loans, and that there was "meaningful" indirect evidence to show the parties knew they were trying to evade taxation.

Fuentes also said that while it may seem unfair for the IRS to treat similar taxpayers differently, the "ever-increasing sophistication" of attempts to avoid taxes requires that the agency be free to pursue taxes it may have once overlooked.

Complying with the law "is, in the end, the taxpayer's legal obligation," Fuentes wrote for a three-judge panel.

Ron Rogers, a Merck spokesman, said: "We're disappointed with the court's ruling. We're reviewing the opinion and considering our options."

The case is Merck & Co v. U.S., 3rd U.S. Circuit Court of Appeals, No. 10-2775.