The IRS is pursuing a case against Medtronic that, if successful, could see the company’s tax bill increase by $1.4 billion and reshape how corporations’ offshore profits are taxed.

As reported in the Star Tribune, the case concerns how Medtronic assigned profits to its plants in Puerto Rico in 2005 and 2006. The government maintains that Medtronic used accounting to exaggerate the share of profits attributed to its four facilities in Puerto Rico to avoid higher taxes on the mainland. The key stats: The Puerto Rico factories contributed 11 percent of the company’s manufacturing costs, but were assigned 60 percent of the company’s profits.
 
The company disagrees, arguing its plants in Puerto Rico play vital roles in design and quality control, and deserve the share of profits assigned to them.
 
A judge in the US Tax Court court agreed with Medtronic last year, but the IRS has appealed that decision to the Eighth US Circuit Court of Appeals with oral arguments in the new case set to be heard next year.
 
The outcome of the case could affect what Metronic owns for taxes for 2007 onward, and is being closely watched by tax experts, as the outcome could affect how “transfer-pricing,” or how income is allocated among a company’s different international branches.     
 
Medtronic said it plans to repatriate up to $4 billion in offshore cash once the dispute with the IRS is resolved, Mass Device noted.
 
Currently, Medtronic is domiciled in Ireland but keeps its operational headquarters in Fridley, where it was founded. The company made the move overseas in 2015 after closing its $43 billion purchase of Covidien.