Medtronic Says New Inversion Rules Won't Hurt Finances

By Anne Steele 

Medtronic Inc. on Wednesday said the Treasury Department's new proposed tax regulations on inversion deals won't have a material financial impact on the medical supply company, which moved its corporate address abroad in a deal last year.

In January 2015, Metronic closed a $43 billion acquisition of Ireland's Covidien PLC, combining two of the world's largest medical-supply companies. Medtronic, formerly based in Minneapolis, redomiciled in Ireland upon completion of the merger, part of a wave of controversial deals aimed at taking advantage of lower corporate-tax rates overseas.

Medtronic said Wednesday that the acquisition "was undertaken for strategic reasons and has created a company that is positively impacting the lives of more patients, in more ways and in more places around the world."

On Monday, the Treasury Department imposed tough new curbs on corporate inversions, making it harder for companies to move their tax addresses out of the U.S. and then shift profits to low-tax countries using a maneuver known as earnings stripping.

The new rules -- the government's third wave of administrative action against inversions -- shocked Wall Street and forced Pfizer Inc. and Allergan PLC to terminate their planned $150 billion merger, which was on track to be the biggest deal of its kind.

The Treasury's regulations would limit what is known as earnings stripping, a practice that follows many inversions and other cross-border acquisitions that helps lower companies' effective tax rates.

Inverted companies -- in fact, all non-U.S.-based companies -- can lend money to their U.S. subsidiaries. Those moves create deductible interest in the U.S., reducing the income subject to the 35% U.S. corporate tax rate and shifting income to a lower-taxed jurisdiction. If a U.S.-based company tried the same technique by borrowing from its offshore subsidiaries, the government would tax that income at the U.S. rate.

Write to Anne Steele at [e-mail]

(END) Dow Jones Newswires

April 06, 2016 09:38 ET (13:38 GMT)

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