The Alabama Court of Civil Appeals affirmed a trial court’s determination that Pfizer could not deduct interest paid to its related Irish affiliate, finding that the “subject-to-tax exception” did not apply. Alabama requires the add back of interest payments made to a related party unless an exception applies. The taxpayer claimed that Alabama’s subject-to-tax exception to the addback applied because the interest payments were received by a related party subject to tax in Ireland. However, the Irish company paid interest (and deducted interest) to a related Luxembourg company – and that company treated the receipt of interest as non-taxable dividend income for Luxembourg tax purposes. The Alabama court essentially “looked through” the Irish company and determined that the interest was not subject to tax in Luxembourg. Thus, the taxpayer was required to addback the interest it paid to its Irish affiliate.
The case also involved a dispute as to whether the trial transcript should be sealed from the public. Trial transcripts generally are publicly available unless a court finds the privacy interest of the taxpayer rises above the public’s right to inspect judicial records. The trial court did not make such a finding. Therefore, the Court of Civil Appeals reversed and remanded the issue back to the trial court to determine whether the trial transcript met the standard for sealing it.
Pfizer, Inc. v. Alabama Department of Revenue (Ala. Civ. App. Sept. 4, 2026).