Tax Court in Medtronic Rejects Government’s Section 482 Challenge for an Intercompany Licensing Agreement To Assess Over $1 Billion in Additional Taxes for Two Years (June 28, 2016)

In a recent Tax Court Memorandum decision, Medtronic, Inc. et al v. Commissioner, T.C. Memo 2016-112, Judge Kathleen Kerrigan, in a long and detailed opinion, rejected the IRS’ method invoked Section 482, for reallocating over well in excess of one billion dollars in income over a two year period between a U.S. parent corporation, Medtronic U.S., and its wholly owned subsidiary, Medtronic Puerto Rico Operations Co. (MPROC) with respect to revenues from several licenses for intellectual property necessary to manufacture high-risk, heavily regulated implantable medical devices. In particular, there were four intercompany agreements in issue: (i) a components supply agreement; (ii) a distribution agreement; (iii) a trademark license agreement; and (iv) a devices and leads licenses agreement.