IRS Busts Medtronic Over Taxes Owed, Transfer Pricing
October 10th, 2008 laurie
The IRS has informed medical device giant Medtronic that it owes an additional $53.6 million in taxes as a result of “transfer pricing,” according to a recent MarketWatch report.
U.S. companies regularly use transfer pricing to reduce their tax burden by shifting intellectual property abroad, in order to avoid relatively high corporate tax rate in this country. As long as the companies license the intellectual property to a foreign subsidiary at a reasonable price, they’re likely to pass muster.
But defining what “reasonable” is has proven a harrowing exercise for companies challenged by the IRS, which has struggled to use a collection of suggested methods and proposed regulations to press its case.
In addition to the uncertainty it subjects companies to, transfer pricing could ultimately undercut shareholders. Currently, investors don’t get much information about companies’ exposure to the murky and potentially costly practice, according to MarketWatch.
The IRS’s case against Medtronic centers on transactions with Tolochenaz, Switzerland-based Medtronic Europe in 1999, three years after the company had established its transfer-pricing structure. In a petition filed in July, the company calls the adjustment to its taxes “arbitrary, capricious and unreasonable,” MarketWatch reports.
Medtronic has disputed the claim and started proceedings in U.S. Tax Court, where it has requested a trial in Chicago.
