Medtronic becomes biggest firm to shed U.S. tax status

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Medtronic, the global medical devices company based in Fridley, will become the nation's largest firm to lower its tax bill by moving operations offshore, Bloomberg News reports.

In a move announced Sunday night, the company gave notice it will acquire its Ireland-based rival Covidien in a $43 billion deal. Covidien, run from a headquarters in Massachusetts, has been officially incorporated in Ireland since 2009.

The deal allows Medtronic to keep its headquarters in Minnesota, but move its "legal address" to tax-friendly Ireland.

It was not immediately clear how much Medtronic plans to save in tax bills. “This is not about lowering tax rates,” Medtronic Chief Executive Officer Omar Ishrak told Bloomberg News. Ishrak himself intends to continue to run the company from Minnesota, and the CEO assured Gov. Mark Dayton that the "company intends to keep its operational headquarters here in Minnesota and that no jobs will be lost here due to this transaction,” Dayton said in a statement.

The corporate tax rate that Medtronic pays, now roughly 18 percent, won't change much, Ishrak said, Reuters reported.

'Tax inversion'

But the move will save the company big money over time, analysts say. The Wall Street Journal notes that Medtronic is entering into a deal known as a "tax inversion," in which the company takes advantage of Ireland's 12.5 percent corporate tax rate.

Medtronic is at least the 44th company – and the largest so far – to incorporate in a foreign country, or to announce such plans, to escape the binds of a 35 percent U.S. corporate tax rate, the highest among developed nations, Bloomberg reports.

Forbes explains that the deal is less about paying lower taxes than it is about being able to pay more dividends to shareholders without the higher tax rate.

Medtronic, the Fortune 500 company started in a Minnesota garage in 1949, has become a world leader in producing innovative high-tech medical devices, from pacemakers to spinal implants. But it also has gained a reputation of late for its ability to funnel profits offshore. It is now one of the 30 companies with the most money held in foreign accounts – $20.5 billion – according to a U.S. PIRG report released earlier this month.

Opening floodgates?

Medtronic's announcement could heighten concerns about a rush of U.S. companies seeking deals to slash their tax bills, CNBC reports.

U.S. states lose from $10 billion to $90 billion a year because corporations stash earnings in offshore tax havens, according to a congressional report last year. A Pew report pegged the number at about $20 billion.

A report last year suggested that Minnesota loses about $2 billion, which has prompted Dayton to push for tax law changes.

Perhaps to calm nerves, Medtronic stresses that it intends to make an additional $10 billion in U.S. investments over the next decade, including money for research and development and acquisitions. The move may be an effort to demonstrate the company's commitment to keeping jobs in the United States, the New York Times reports.

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