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Medtronic could save $4 billion in taxes with Covidien acquisition

 – Managing Editor-Minneapolis / St. Paul Business Journal

For a merger that’s not supposed to be about taxes, the planned Medtronic-Covidien deal sure saves a lot on taxes.

The Star Tribune reports that Fridley-based Medtronic Inc. could avoid $3.5 billion to $4.2 billion in U.S. taxes if it shifts its legal headquarters abroad after buying Dublin-based Covidien.

The savings don’t come from corporate income taxes. Even though Ireland’s tax rate is lower, Medtronic (NYSE: MDT) says it’ll pay about the same rate after the deal. Rather, they’re on the taxes that Medtronic would incur if it used the $14 billion in foreign profits it holds overseas in the United States. As a U.S. company, that would trigger taxes at a 25 to 30 percent rate. As a foreign company, it won’t.

The story also has comments from politicians on what they think of the idea. U.S. Sens. Amy Klobuchar and Al Franken, both Minnesota Democrats, are both a bit sour on it, suggesting that they’d prefer keeping Medtronic’s headquarters here but arranging some sort of workaround that would lower taxes on overseas cash.

In The Wall Street Journal today, Sen. Rob Portman, R-Ohio, cites the Medtronic deal as he calls for a broader tax overhaul, lowering corporate tax rates (which probably could find bipartisan support), closing the many loopholes (which would probably be the trickier part) and using one to pay for the costs of the other.

Mark Reilly manages daily and weekly coverage at the Business Journal newsroom.

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Josh Sandberg

Josh Sandberg is the President and CEO of Ortho Spine Partners and sits on several company and industry related Boards. He also is the Creator and Editor of OrthoSpineNews.

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