Tag: Medtronic

US vs Medtronic, August 2022, U.S. Tax Court, T.C. Memo. 2022-84

US vs Medtronic, August 2022, U.S. Tax Court, T.C. Memo. 2022-84

Medtronic had used the comparable uncontrolled transactions (CUT) method to determine the arm’s length royalty rates received from its manufacturing subsidiary in Puerto Rico for use of IP under an inter-group license agreement. The tax authorities found that Medtronic left too much profit in Puerto Rico. Using a “modified CPM” the IRS concluded that at arm’s length 90 percent of Medtronic’s “devices and leads” profit should have been allocated to the US parent and only 10 percent to the operations in Puerto Rico. Medtronic brought the case to the Tax Court. The Tax Court applied its own analysis and concluded that the Pacesetter agreement was the best CUT to calculate the arm’s length result for license payments. This decision from the Tax Court was then appealed by the IRS to the Court of Appeals. In 2018, the Court of Appeal found that the Tax Court’s factual findings had been insufficient. The Court of Appeals stated taht: “The Tax Court determined ... Read more
US vs Medtronic, August 2018, U.S. Court of Appeals, Case No: 17-1866

US vs Medtronic, August 2018, U.S. Court of Appeals, Case No: 17-1866

The IRS was of the opinion, that Medtronic erred in allocating the profit earned from its devises and leads between its businesses located in the United States and its device manufacturer in Puerto Rico. To determine the arm’s length price for Medtronic’s intercompany licensing agreements the comparable profits method was therefor applied by the IRS, rather than the comparable uncontrolled transaction (CUT) method used by Medtronic. Medtronic brought the case to the Tax Court. The Tax Court applied its own valuation analysis and concluded that the Pacesetter agreement was the best CUT to calculate the arm’s length result for intangible property. This decision from the Tax Court was then appealed by the IRS to the Court of Appeals. The Court of Appeal found that the Tax Court’s factual findings were insufficient. The Tax Court failed to: address whether the circumstances of the Pacesetter settlement was comparable to the licensing agreements in this case, the degree of comparability of the contractual ... Read more