Medtronic (NYSE:MDT) said today that it expects to land a substantial windfall once it resolves a dispute with the IRS over the next "couple of years."
In a regulatory filing, Fridley, Minn.-based Medtronic said it expects to repatriate between $500 million and $4.5 billion in overseas cash once the dispute is put to bed.
The cash will be used to lower its debt load, Medtronic said in the filing.
The dispute involves "transfer pricing" among the company’s various units during the tax years 2005 and 2006. Medtronic is disputing the IRS’s adjustments of those transactions. The tax bureau wants Medtronic to cough up $958 million in relation to the transfer pricing. Last month the U.S. Tax Court denied a request by the IRS to issue a partial summary judgment in the case.
In transfer pricing, income is allocated among branches in different countries. It’s a legal tax maneuver companies can use to attribute profits from a product made and sold in the U.S. to a unit in a foreign country. Medtronic gleans more than half of its $16 billion annual take from U.S. sales of devices made in Puerto Rico, but much of that is attributed to a post office box in the Cayman Islands.
Medtronic said it hopes to reach a settlement with the IRS "in the next couple of years."
"Once resolved, we expect to receive a 1-time movement of cash from our OUS operations to our U.S. operations of between $0.5B and $4.5B for tax years FY05 to FY14 (range is net of tax paid)," the company said in the filing. "We intend to use the majority of this cash to reduce leverage. This event is independent from the transaction with Covidien, but is a component of Medtronic’s leverage-reduction plan."
