A proÂposed setÂtleÂment with the IRS this week will reÂsolve a tax disÂpute that MedÂtronÂic inÂherÂitÂed when it bought Covidien a year ago, but the IreÂland-based medÂiÂcal deÂvice comÂpany still has sevÂerÂal onÂgoÂing tax disÂputes and audits with the tax man.
On TuesÂday, MedÂtronÂic anÂnounced it would pay as much as $220 milÂlion toÂward the $525 milÂlion tax setÂtleÂment that Covidien's formÂer ownÂer, Tyco International, reÂcentÂly struck with the IRS. The setÂtleÂment, which needs IRS apÂprovÂal, is inÂtendÂed to reÂsolve all of Covidien's U.S. tax disÂputes through 2007, when Tyco spun off the surÂgiÂcal supÂply comÂpany, seÂcuriÂties filÂings say.
In 2013, the IRS said Tyco owed more than $1 bilÂlion in back taxÂes and fees for tax years 1997 through 2000. The comÂpany disÂagreed.
The disÂpute inÂvolved whethÂer Tyco could leÂgalÂly claim deÂducÂtions on its fedÂerÂal inÂcome taxÂes for inÂterÂest on bilÂlions in "intercompany" loans. If the IRS had won at triÂal, it would have likeÂly apÂplied the same legal reaÂsonÂing to anÂothÂer $6.6 bilÂlion in Tyco inÂterÂest deÂducÂtions through 2007, seÂcuriÂties filÂings say.
InÂstead, this week's setÂtleÂment would reÂquire Tyco to pay up to $142 milÂlion, less than it had alÂreadÂy set aÂside to covÂer the setÂtleÂment. WilÂliam Blair & Co. anÂaÂlyst NichoÂlas HeyÂmann sent a note to investors callÂing the deal "enÂcourÂagÂing" and "poÂtenÂtialÂly faÂvorÂaÂble" to the comÂpanies. The IRS deÂclined to comÂment.
Under comÂplex legal agreeÂments struck in 2007 and 2012, Tyco is reÂsponÂsible for payÂing 27 percent of the setÂtleÂment it struck with the IRS, while Covidien (now MedÂtronÂic) will pay anÂothÂer 42 percent. The reÂmainÂder will be coÂvered by TE ConÂnecÂtivÂiÂty, anÂothÂer comÂpany spun out of Tyco International in 2007.
Covidien has alÂreadÂy "reached aÂgreeÂment" on disÂputÂed amounts of U.S. inÂcome taxÂes for 2008 and 2009, but tax colÂlecÂtors are still auditÂing the comÂpany's 2010, 2011 and 2012 taxÂes, MedÂtronÂic filÂings say.
MedÂtronÂic, which was foundÂed in Minneapolis in 1949, moved its legal adÂdress to Covidien's headÂquarÂters on Lower Hatch Street in DubÂlin, IreÂland, last JanÂuÂarÂy afÂter MedÂtronÂic acÂquired it for $49.9 bilÂlion in cash and stock.
IreÂland's corÂpoÂrate tax rate is about one-third of the U.S. rate of 35 percent. The comÂbined comÂpany kept most of its execÂutives' ofÂfices in Fridley and pledged to creÂate more U.S. jobs and inÂvestÂments with its enÂhanced fiÂnanÂcial flexÂiÂbilÂiÂty afÂter the deal.
This month MedÂtronÂic anÂnounced plans to spend $9.3 bilÂlion in cash and equivaÂlents that was freed up through an inÂterÂnal reÂorÂganÂiÂzaÂtion of MedÂtronÂic's formÂer U.S.-conÂtrolled subÂsidÂiarÂies outÂside the counÂtry.
The tax disÂputes beÂtween Covidien and the IRS are not MedÂtronÂic's only disÂpute with U.S. tax colÂlecÂtors.
Securities filÂings deÂscribe three sepaÂrate onÂgoÂing tax disÂputes beÂtween MedÂtronÂic and the IRS, covÂerÂing fisÂcal years 2005-11, plus onÂgoÂing audits of MedÂtronÂic's fisÂcal 2012, 2013 and 2014 inÂcome taxÂes.
Each of the disÂputes beÂtween 2005 and 2011 inÂvolve disÂagreeÂments over "alÂloÂcaÂtion of inÂcome" beÂtween then-U.S.-based MedÂtronÂic and its PuerÂto Rico manuÂfacÂturÂing cenÂter, MedÂtronÂic PuerÂto Rico Operations Co., which is inÂcorpoÂratÂed in the CayÂman Islands, acÂcordÂing to seÂcuriÂties filÂings.
It's not clear how much the IRS claims that MedÂtronÂic owes in unÂpaid taxÂes. Records from fedÂerÂal tax court are eithÂer reÂdactÂed or not public.
The legal news servÂice Law 360 has reÂportÂed that MedÂtronÂic is fightÂing an IRS deÂmand for $561 milÂlion reÂlatÂing to a tax disÂpute covÂerÂing fisÂcal years 2005 and 2006. A triÂal on that was held last year, and a rulÂing is not exÂpectÂed beÂfore April.
Joe Carlson • 612-673-4779
Twitter: @_JoeCarlson