– The Obama administration wants to stop corporate deals like a proposed Medtronic acquisition that could enable the company to save millions in U.S. taxes by shifting its headquarters to Ireland.

Treasury Secretary Jacob Lew this week urged the finance committees of both chambers of Congress to push legislation that restricts the ability of U.S. corporations to move their headquarters abroad to lower their tax bills. Lew wants the law made retroactive to May, a move that could scuttle Medtronic’s proposed $42.9 billion acquisition of Dublin-based Covidien.

“We should prevent companies from effectively renouncing their citizenship to get out of paying taxes,” Lew wrote in a letter dated Tuesday to top congressional tax writers.

The Medtronic deal and others like it are highly controversial, with some arguing that a flawed U.S. tax system creates an incentive to shift profits offshore through a process known as “tax inversion.” “Medtronic has become a kind of lightning rod,” Minneapolis public relations consultant Glenn Karwoski said.

Medtronic, however, says saving on taxes is not the primary rationale for the Covidien deal. The company’s vice president of corporate taxes, Phil Albert, said in an interview with the Star Tribune that strategic benefits in the combination would enable Medtronic to build a “premier medical technology company.”

Albert said that once Medtronic decided to acquire Covidien, it looked for the best structure for the enlarged company. “Ultimately,” he said, “the right way to do a deal when you’re buying a foreign company of this size was the inversion structure.”

As the Fridley-based company promotes the deal, on Wednesday it launched a “Guide to Tax Inversion” that aims to clear up what the company calls “misperceptions” about why it hopes to move its corporate headquarters abroad but keep its operational headquarters in the United States.

Several recent commentaries have criticized Medtronic, and its proposed deal has ignited a national debate about lost federal revenue and the need for corporate tax reform.

Pat Strother, who teaches public relations at the University of Minnesota, said that as the media began to report the tax advantages that accrued to Medtronic from moving its headquarters overseas, it “created a sense of betrayal.”

“The story line moved on them very quickly,” Strother said, “and it stuck.”

Where Congress stands

Revenue-starved politicians looking at the federal deficit also have begun to complain. Even before Medtronic announced plans to buy Covidien, Democratic U.S. Sens. Amy Klobuchar and Al Franken of Minnesota supported restrictions on tax inversions. In an interview, Klobuchar said she had not seen Lew’s letter and could not comment on its contents.

In a statement, Franken did not comment on Lew’s specific recommendations but said “deals that result in businesses reincorporating abroad often mean that they can shelter profits overseas, costing taxpayers in Minnesota and across the country billions of dollars — which I find troubling.”

On Wednesday, Senate Finance Committee Chairman Ron Wyden, D-Ore., said the “inversion loophole must be plugged ... in the near and long term.”

Retroactive changes in U.S. tax law like those that Wyden is considering could kill Medtronic’s purchase of Covidien by requiring more foreign shareholders than the current deal envisions. “It all is dependent on whatever that law is,” Albert said of potential legislation. “If there is any change of law that implicates either Covidien or Medtronic, management of both teams would want to discuss that.”

Debate over loopholes

Currently Medtronic has $14 billion in cash overseas and would have to pay taxes on the money if it were to move it to the United States. Albert told the Star Tribune that there is no way Medtronic’s restructuring would allow it to spend that money in the United States without incurring taxes, a maneuver some analysts have said would be possible.

Several financial analysts immediately challenged Albert’s claim. They said loans from Medtronic’s foreign subsidiaries to the new Medtronic Irish holding company could allow the $14 billion to be spent in America while paying very little in tax. “When they say there is absolutely no way, that’s an overstatement,” said Samuel Thompson, a tax expert at Penn State University law school.

The Covidien deal remains on track, with Albert calling it a “strategic benefit to patients” who use medical devices produced by the two companies. “After the Medtronic-Covidien acquisition, we continue to be subject to all U.S. tax laws.” Medtronic stressed in its new guide.

The catch, according to Thompson and other tax experts, is that U.S. tax laws differ materially for foreign corporations and U.S. corporations.

For starters, the Irish corporate tax rate is 12.5 percent as opposed to 35 percent in the United States. For the new Medtronic, taxes on profits earned in the U.S. will still be 35 percent, less whatever tax breaks Medtronic can find. But future profits of foreign subsidiaries of the new Medtronic Irish holding company would be taxed only at the rates of the countries where they are earned.