In the wake of the U.S. Treasury Department’s move to combat inversion deals, Medtronic doesn’t appear too worried — at least publicly.
Despite last week’s issuance of temporary rules — which expire in April 2019 — that aim to stop domestic companies from buying smaller oversees firms to avoid paying U.S. taxes, Medtronic maintains that the move will “not have a material financial impact on any transaction undertaken by the company.”
The regulations, which will apply to all deals made after April 4, address serial inverters — companies that have grown larger through inversions or acquisitions of U.S. firms — by disregarding their acquired American assets over the previous three years in determining their size.
Further, the regulations aim to tackle earnings stripping, whereby companies try to avoid U.S. taxes by paying deductible interest to a low-tax country. Under the new rules, Treasury can restrict related-party debt that does not finance new investment in the U.S.
That shines the spotlight on Medtronic’s mega-$49.9 billion acquisition of Covidien in January 2015, through which the device giant moved its worldwide headquarters to Ireland for tax purposes.
Medtronic says it will study the regulations and “provide appropriate disclosure concerning any potential material impact on the company, if applicable.”
Treasury’s actions already have had an effect, with Pfizer and Allergan calling off their planned $160 billion merger last week. The two said the decision was driven by Treasury’s actions.
Read the Treasury’s temporary rules here: www.fdanews.com/04-06-16-FederalRegister.pdf. — Michael Cipriano