One of the ironies of this season of tax inversions is that the big Minnesota company that seems hellbent on completing one already pays less than half the 35 percent statutory federal tax rate.

That company is Medtronic, which reported a 17.3 percent effective tax rate for its latest fiscal year. The CEO, Omar Ishrak, has been saying that taxes aren't the main reason to merge with Ireland-based Covidien and incorporate the new company in that low-tax country.

And there is some logic to his argument, in that Medtronic's taxes are already so low that there doesn't appear to be a lot more to save.

But, in fact, the 35 percent U.S. tax rate is very real, and it loomed large in Medtronic's thinking. Indeed, it's not hard to find big American companies, presumably with access to $1,000 per hour tax advisers, with twice the effective tax of Medtronic.

What's different about the giant medical device maker, and other companies with vast international operations, is that they are able to book a lot of their profits in places with lower tax rates than the top statutory U.S. rate of 35 percent. For example, the accounting firm KPMG has calculated the European Union average at 21.3 percent.

In the notes to its annual financial statements, Fridley-based Medtronic lumped 17.7 percentage points of the reduction from the 35 percent rate under the simple heading of "international."

Medtronic is a true global company, of course, and has been for decades. But the smart play, wherever there is a choice, is to book profits in subsidiaries located in lower-tax countries.

That's why about 46 percent of Medtronic's revenue came from international markets last year, but 54.4 percent of pretax earnings.

And, boy, does it make a difference where a dollar of profit is booked. Medtronic recorded a tax expense on its U.S. income at a rate of 31.5 percent. The tax expense on the international income was 12.3 percent.

Under U.S. law, all of an American company's income is taxable in the United States, with the wrinkle that international profits are taxable only when brought back home.

That's why, as of the end of the fiscal year, Medtronic had not booked U.S. income tax expense on more than $20.5 billion of undistributed earnings that have been left on the books of its non-U.S. subsidiaries.

So why, with such a low effective tax rate, is Medtronic moving to a new home in Ireland? It's because Medtronic is nearing the end of the road for its international tax strategy — and the idea of bringing the money back home makes the 35 percent federal rate very much a factor.

Medtronic can't keep letting capital pile up abroad, saving money on U.S. taxes, and still pay shareholders dividends or invest in promising technologies it is developing in the United States.

The only thing striking about what Medtronic has done is the extent to which it has lowered its tax bill. Some of the same practices are in evidence at many big companies.

St. Paul-based Ecolab, for example, is a true global company, too, generating about 44 percent of its pretax profits abroad last year. It had an effective tax rate of 25 percent.

That's much higher than Medtronic's, but Ecolab is also working pretty hard to minimize tax expenses. It didn't cut 17.7 percentage points from its tax rate due to international operations, like Medtronic did, but it did manage to knock off 4.5 percentage points. As of the end of its last fiscal year, Ecolab had $1.6 billion in foreign earnings that it considered permanently reinvested abroad.

Of course there are plenty of other tax breaks out there for big companies, and it would be easy to assume that nobody pays anything close to the full 35 percent. In fact there's at least one company that does so right in downtown Minneapolis — Target Corp.

The Minneapolis-based retailer recorded income tax expense last year of $1.13 billion, including a small amount for state taxes, on $3.1 billion of pretax income. That's an effective rate of 36.5 percent.

Another big retailer, the Walgreen Co., is an even more interesting case. A week ago, Walgreen announced its full fiscal year financial results, including tax expense at a 42.9 percent effective rate.

Walgreen had a chance to do something about its tax status by relocating to Switzerland, a classic inversion deal, when it completes its planned acquisition of the European retailer Alliance Boots. But it decided to stay put in suburban Chicago.

Walgreens shareholders then voted on that decision — with their feet. Walgreen stock tumbled 18 percent over two trading days following news in August that there would be no Walgreen inversion and no tax savings.

Both Target and Walgreen would undoubtedly love to have a 25 percent effective tax rate like Ecolab or 17.3 percent like Medtronic.

Companies like Walgreen and Target, though, don't have a far-flung network of foreign subsidiaries in which they could book a big chunk of their corporate profits and then keep them there, away from U.S. tax authorities. Target has a foreign operation, up north in Canada, but it's been a money loser.

The kind of innovation Target does isn't valued by congressional tax law writers, so Target can't claim a big research and development tax credit like Ecolab and Medtronic did. Selling everyday products in a store isn't valued as much as making things in a factory, so Target can't get the domestic manufacturing tax break, either.

If Target's leadership isn't aggravated by this situation, it should be. Target and Medtronic might be in industries about as different as they can be, but Target still competes with Medtronic in the capital markets. The fact that Medtronic has figured out how to pay far less in taxes makes it easier for the company to earn higher returns on capital and attract investors.

But the only practical option for companies in Target's position is pretty much the same as what the rest of us have — pay your taxes.

lee.schafer@startribune.com • 612-673-4302