Medtronic PLC, a medical device manufacturer who used to have operations in Puerto Rico, has defeated the IRS in US Tax Court, resolving a $1.4 billion dispute. The key issue in the case centered on transfer pricing – transactions between different divisions or companies owned by the same corporation or corporate parent. US transfer pricing laws require that these transactions are to be conducted at “arms length” as if they were occurring between companies who were not related. The IRS is concerned with corporate attempts to use corporate transfers and other transactions to hide profits and inflate costs of goods or an increase in the “basis” of their product’s actual value. The IRS and other sovereign tax agencies are interested in ensuring that income is taxed when and where it occurs.
In this case, Medtronic had manufacturing facilities in Puerto Rico and was taking advantage of lower tax rates provided by Puerto Rico laws prior to moving operations to Ireland in 2007. It is not uncommon for complex disagreements to develop between a corporation and the IRS during an IRS audit with regards to the allocation of income, costs and profits. Many US-based corporations, such as Apple and Microsoft, have opened foreign entities in an attempt to shift income to an offshore jurisdiction with lower tax rates. The IRS often challenges the allocation of income in these cases, and transfer pricing is one of the primary battle grounds in these cases.
The experienced international and domestic corporate tax attorneys at Allen Barron have the experience and expertise to manage these sophisticated issues. The convenience of the combined services of experienced tax attorneys, CPAs, accountants and bookkeepers and tax preparation under a single source provides deeper insight into these challenges, resulting in better outcomes for our corporate clients when they appear before the IRS or California’s tax agencies. Our clients value the economy of scale (multiple disciplines in a single-source vendor) as well as the deeper insight and understanding they gain through the perspectives of multiple disciplines.
We invite you to contact our firm for a free and substantive consultation at 866-631-3470.
