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Irish shift could save Medtronic USD4bn

Thursday, June 26 14:17:28

Medtronic could save up to USD4.2 billion in U.S. taxes on funds it holds overseas as part of its plan to acquire a major medical company and move its corporate headquarters to Ireland in a so-called Tax Inversion move.

Medtronic told online US newspaper The Star Tribune that it estimates the tax rate on $14 billion it holds in foreign profits at 25 to 30 percent if the company were to bring that cash back to the United States.

But by becoming a foreign-based company, as proposed under a major acquisition Medtronic announced last week, the company could move the cash in ways that the tax would no longer apply, tax experts say.

The Medtronic plan to acquire Dublin-based Covidien for $42.9 billion has reignited a debate among US corporations, consumers and politicians about how to improve the corporate tax system and remove incentives to shift business overseas.

Medtronic has said that tax advantages are not the reason for its plan to acquire Covidien, a deal that would also strengthen its competitive position. But the tax implications are nonetheless significant; the potential multibillion-dollar tax reduction on the $14 billion alone is several times the $521 million that Medtronic paid in taxes in its latest fiscal year.

The new Irish holding company, Medtronic PLC, would not be bound by U.S. tax laws. With the new corporate structure, Medtronic's foreign subsidiaries could loan money to the holding company without incurring U.S. taxes, says Edward Kleinbard, professor at the University of Southern California's Gould School of Law, the Star Tribune reported.