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Compliance In Focus
Posted by John Lehmann on Wed, Jul 23, 2014

Tax-Inversion Push Back

Tax Inversion Push BackThe recent acquisition of Covidien by Medtronic has brought what may be some unwanted attention to companies attempting to move operations overseas for tax-inversion purposes.  The Obama administration is trying to crack down on these strategies, and Treasury Secretary Jack Lew has now issued a letter to congressional tax-writing committees urging lawmakers to limit inversions through a legislative overhaul.  Lew would like immediate governmental action   that is simultaneously retroactive to May 2014, a decision which could have an impact on similar deals that have already taken place.

Lew’s letter urges more economic patriotism indicating that “We should not be providing support for corporations that seek to shift their profits overseas to avoid paying their fair share of taxes.”

There seems to a wide range of opinions in the medical device industry regarding this recent chain of events.  Medtronic defends the acquisition of Dublin-based Covidien as a merge that is not entirely motivated by tax-inversion purposes.  Omar Ishrak, CEO for Medtronic indicates that this -maneuver was driven by the combination of valuable medical technology from both companies.  “We believe Medtronic’s deep expertise will accelerate introduction and rapid adoption in markets around the world.”

Abbott Laboratories, however, does not view tax-inversion as a “strategic imperative” and insists that companies should consider impending tax reforms when deciding to move operations overseas.

Opinions outside of the medical research world vary too. When it comes to the potential impact on the states themselves, Martin Sullivan, chief economist at Tax Analysts, reminds industry members of the possible effects such tactics might have on the U.S. Economy:  “U.S. tax rules treat U.S. income and foreign income differently. When that is the case, the states would almost certainly lose revenue because when income is stripped out of the U.S. federal tax base, it is also being stripped out of the state tax base."

And while Minnesota Revenue Commissioner Myron Frans, whose state serves as home-base to Medtronic, prides Minnesota on its friendliness and support to medical research companies, Frans still doesn't blame the firm for attempting to maximize profits through legal tax strategies.

What are your thoughts on the tax-inversion discussion?  What impact will Medtronic’s move and the Obama administration’s reaction have on future med-tech mergers?  Share your thoughts with us.

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Topics: Tax-Inversion, Jack Lew, Covidien, Obama Administration, Medtronic

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