Friday, June 27, 2014

Medtronic’s Effective Tax Rate

The Citizens for Tax Justice were kind enough to let me know of their new blog:
Already facing criticism for its plans to become an Irish company to avoid U.S. taxes, Medtronic, the Minnesota-based medical device maker, disclosed this week that it pays very little in taxes in the foreign countries where it claims to have profits.
Medtronic plans to merge with Covidien which is tax domiciled in Ireland. Covidien was a spin-off of Tyco, which has been battling with the IRS since it went offshore. But I should stop interrupting:
In Medtronic’s just-released annual financial report, the fine print reveals that the company’s total “permanently reinvested” foreign profits—that is, income they have said they have no intention of bringing back to the U.S.—rose from $18.1 to $20.5 billion in the past year. And the total amount of cash and cash equivalents that the company holds abroad rose abruptly from $10.9 to $13.9 billion in just one year.
Over half of Medtronics income is reported overseas which is a combination of the fact that over half of its activities occur overseas and very low royalty rates paid back to the U.S. parent for the use of intangible assets. It turns out that the IRS has challenged these low royalty rates with a trial set in early 2015. But again, I’ve interrupted:
We’re willing to bet that just like Medtronic the other profit-shifting U.S. multinational companies know exactly how much it will cost to repatriate those earnings, but don’t want to let the public know of their tax-dodging ways.
Actually, this should be no mystery for anyone who wants to go here and type in the company name (Medtronic in our case). In the financial footnotes under income taxes, one can see how much of Medtronic’s income was sourced abroad as well as how much they provided for foreign taxes. Foreign taxes relative to foreign income was about 10 percent, which is why Medtronic is able to report effective tax rates near 18 percent.

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