Obama Administration's Reversions To Anti-Inversion Tactics

Tax Inversions: Obama Administration's Reversions To Anti-Inversion Tactics

Inversion deals were becoming very common in the US and many companies sought to take advantages of tax inversion deals. This had not gone down too well with Democrat senators and now the chink in the armor has widened. Obama administration is up and about to end the era of tax inversion deals in the US economy. Last heard, this was shaking up many multibillion-dollar deals and medical device maker Meditronic is the latest in the list of many which have been stung.

But this is not exactly stopping the medical devices company. It has announced that it will restructure financing for the USD 43 billion acquisition of Covidien. As part of this plan to gain tax benefits, the US company was also headed to Irish shores. But the US Treasury Department was not going to take this lightly either. The restructuring aspect of this announcement indicates the department may have found the Achilles heel of companies cheering for tax inversion deals as a way to get out of losing a major chunk of their cash.

Meditronic has had to restructure the financing following the latest moves of the US Treasury Department. Until then, it had aimed to use overseas cash it held as well as that of Covidien to pay for the deal. This plan would have been tax efficient, says a Reuters report which explains how the medical device maker would have used hopscotch loans to avoid paying the IRS for repatriation.

But instead of hopscotch, it's a hot scorch and the US Treasury Department has certainly stung the companies were it hurts. The burns are beginning to show already. The department ened hopscotch loans for inverted companies through its recent announcement. As a result Meditronic will now draw on USD 16 billion external financing for the completion of the deals , even as its details remain unchanged. Whether this a good way out now rests on the irrefutable fact that it all depends upon whether the US Treasury Department will take evasive action or not.

Either which way, Meditronic's CEO Omar Ishrak has stressed that even without the tax inversion, the Covidien deal has many benefits. Reuters has quoted him as saying, “This proposed acquisition was conceived and undertaken for strategic reasons and is intended to create a company that can treat more patients, in more ways and in more places around the world,” Mr. Ishrak said in a statement. “We believe our combination will be uniquely positioned to help advance the goals of the Affordable Care Act in the U.S. as well as the objectives of virtually all health systems — to drive access to high-quality, affordable health care for patients around the world. Since the announcement of this transaction, we have worked closely with our Covidien colleagues to plan for the integration of these two leading companies, and we look forward to closing the transaction and realizing these strategic benefits.”