Another US corporate giant is looking to re-incorporate in Europe — and thumb its nose at Uncle Sam.
Medical device-maker Medtronic is in advanced talks to shell out more than $45 billion to acquire rival Covidian, according to reports, in a deal whose key attraction is to lower its tax bill.
Minnesota-based Medtronic makes pacemakers and spinal devices, while Covidian specializes in surgical devices including staplers, sutures and needles.
While there could be savings created through the elimination of duplicate back-office services and sales teams, the really big reductions would come with Medtronic, which is subject to the US corporate tax rate of 35 percent, reincorporating itself in lightly taxed Ireland, where Covidian is based — despite keeping most of its operations in Massachusetts.
Covidian is now subject to Ireland’s main corporate tax rate of 12.5 percent, which allows it to be more profitable than its US rivals, according to analysts.
Medtronic also is looking to make use of more than $14 billion in cash it has stashed overseas in order to avoid paying US taxes on it. Last year, Medtronic’s effective tax rate was 18 percent, lowered by keeping its foreign earnings outside the US.
The Medtronic-Covidian deal could be announced as soon as Monday, according to reports.
The proposed deal, known as a “tax inversion,” would be the fifth tax-aversion takeover announced this year, with medical companies in particular making the move, citing fears that ObamaCare will cut into profits.
There were four tax-aversion mergers in all of 2013.
Other big firms, including Liberty Global and banana giant Chiquita, have also lately cut deals to reincorporate outside the US. Meanwhile, members of Congress have signaled they want to close the tax loophole.
“These transactions are about tax avoidance, plain and simple,” Sen. Carl Levin (D-Mich.), the lead sponsor of a bill that would close the aversion loophole, said last month. “The Treasury is bleeding red ink, and we can’t wait for comprehensive tax reform to stop the bleeding.”
Drug giant Pfizer recently scuttled a proposed $120 billion deal to acquire its UK-based rival AstraZeneca, a move that would have spurred a tax windfall worth billions.
Meanwhile, Illinois-based drugstore chain Walgreen is set to acquire British-based drug chain Alliance Boots next year. Walgreen is being pressured by shareholders, including the hedge fund Jana Partners, to reincorporate in Switzerland to avoid US taxes once the deal is done.
Critics, meanwhile, have blasted Walgreen’s proposed dodge, noting that the chain gets nearly a quarter of its business from the government’s Medicare and Medicaid programs.