Medtronic Could Lose In New Bill To Hit Corporate Deserters

Medtronic (NYSE:MDT) could get a big hit if some Democrats in Congress are successful in their quest to pass a bill banning inverters from bidding for or winning federal contracts. Such companies have claimed as much as $1 billion in government dollars in the past 5 years.

Hoping to curb what is being deemed a corporate exodus of firms shifting their headquarters overseas to avoid taxes, Senators Dick Durbin (D-Illinois) and Carl Levin (D-Michigan) and Representatives Rosa DeLauro (D-Connecticut) and Lloyd Doggett (D-Texas) introduced the “No Federal Contracts for Corporate Deserters Act.”

In short, the bill would withhold federal contracts from firms that relocate their headquarters overseas to benefit from lower tax rates. Medtronic, which announced it is moving its Minnesota headquarters to Ireland late this year or early in 2015, could be affected since it just last year won a $58 million Department of Defense contract. According to MassDevice.com, Medtronic plans to use its $43 billion acquisition of Covidien (NYSE:COV) to relocate headquarters to Ireland in a “corporate inversion.”

There are already regulations on the books to restrict funds to inverters, but “just like with the tax code, corporations have begun to find loopholes in the contracting restriction,” according to a statement issued by Senator Levin.

Medtronic and Covidien have maintained that their merger is not motivated by the inversion, saying that the main drivers are strategic.

 

“Americans are rightly outraged at the wave of corporations seeking to abandon the U.S. to avoid their taxes,” Levin said. “We ought to put a stop to all inversions, but at the very least, we should stop these companies from receiving federal funding from the same American families who have to pick up the tax burden inverted companies shrug off.”

 

The White House has also sponsored measures to clamp down on offenders by prohibiting companies from changing their corporate tax domicile unless there is a change in control of the company itself. The proposal would take effect retroactively to early May 2014, meaning that it would impact the Medtronic-Covidien deal.

Nevertheless, the merger will allow Medtronic to tap the billions currently stored outside the U.S. without having to pay U.S. corporate taxes upon repatriation.

Covidien moved its headquarters to Ireland in 2009, saying at the time that the company hoped to benefit from the lower corporate tax rate there.

Sources: MassDevice.com, Senator Dick Durbin

  • Calvin Douglas

    They’re talking taxes, not jobs.

    • Lisa R

      “relocate their headquarters overseas” – that is jobs PLUS the only reason to do so is to avoid taxes that American companies pay – it’s the wrong thing to do no matter which way you want to look at it.

  • Calvin Douglas

    Paying taxes is patriotic? I thought having love for country is what it meant to be patriotic. Silly me.

  • Calvin Douglas

    I don’t get it. Why is it so important for corporations to pay taxes? Don’t any of you realize that means those companies will charge you more in order to cover those taxes? You think that the 39% corporate tax rate just magically appears in companies’ checking accounts?

    If you thought more than half a second about it, you’d agree that businesses should be paying nothing in taxes. Because as it stands, we the people are being taxed twice – it’s just that the second time is in paying higher prices to cover company taxes.

    I’m a lot more concerned about our greedy government than I am about the corporations they’re trying to fleece.

    • hugh bohner

      It’s important for corporations to pay taxes because they use highways and other infrastructure that the government pays for. Why are corporations allowed to distort the tax laws to serve their own needs while citizens cannot? Corporations also recieve massive subsidies from the US government. Those should be eliminated as well

  • VietVet

    The United States has the highest corporate taxes in the world!! This plan sounds something like telling a battered wife to stay because her husband doesn’t spend all their money getting drunk. How about ABOLISHING the IRS and banning unions so we could be competitive again? I believe jobs and prosperity would return very quickly.

  • Alisa

    Something most people don’t consider is that poor old Uncle Sam gets paid taxes TWICE on the money that corporations earn. They get to tax it at around 40% for corporate taxes, and THEN the salaries that trickle down to all the employees gets taxed.
    Think about that for a moment as you sit all enraged by companies doing whatever they can to avoid US corporate tax rates.