Corporate inversion

A large Minneapolis company, Medtronic’s recently completed a corporate inversion. This means they merged with a company located outside of the United States. In this case the country is Ireland where the corporate tax rate is 12% vs the 35% in the US. While most of the news says they did this to avoid taxes, they would not do it if there were not additional benefits. In recent months the government has enacted new rules which made the tax change less advantageous. In looking at only the tax advantages, inversions appeal to companies that receive a large amount of their profit from foreign sales. The corporate tax rate in Ireland is about one-third the rate here in the United States. Medtronic currently has $13 billion overseas and that money can now be brought home with a tax savings of over $8 billion. This money can now be used to invest in new products or facilities or for employee benefits here in the US. Citizens who understand this process are upset but Medtronic does not sell to consumers so the effect is not damaging to the company. For others this may not be the case. Take another large Minneapolis firm 3M. On sales of $34 billion, 3M paid $9.4 billion in taxes or a 28% rate. Since 3M sells many consumer products the process of inversion would likely hurt sales. One solution to this problem is to allow companies to repatriate (bring home) the cash. Apple Inc.’s cash topped $200 billion for the first time as the portion of money held abroad rose to almost 90 percent, putting more pressure on Chief Executive Officer Tim Cook to find a way to use the funds without incurring U.S. taxes. It is estimated that US companies have over $2 trillion dollars sitting overseas and if the government would offer a one-time tax break to bring this money home, many companies would take advantage.