So, the $13.9 billion question is, could the Obama administration's tax regulations that are designed to stem inversions scupper the Medtronic-Covidien deal, to quote a headline on the FierceMedicalDevices website? At this point, no one really knows, although shares of both companies were trading down today. Medtronic holds approximately $13.9 billion in cash and equivalents overseas; it intends to loan some of that money to Covidien, once the deal has been finalized, and thus avoid paying U.S. taxes on it. "Because the loans allow the company's cash to skip past the former U.S. parent company, they're known as hopscotch loans," writes Zachary R. Mider on businessweek.com. The rules released by the Treasury Department restrict this practice.
Medtech giant Medtronic announced in June that it planned to acquire Covidien and reincorporate in low-tax Ireland, where Covidien is headquartered. There is a provision in the deal allowing either company to back out should tax laws change.
The 35% U.S. corporate tax rate is the highest nominal rate in the world, leading a number of companies to look for new domiciles in low-tax nations such as Ireland, the United Kingdom, Switzerland, and the Netherlands, writes Chris Newmarker on qmed.com. Medtronic has also pointed out that the United States is one of only six OECD countries that imposes on its businesses the worldwide taxation of corporate profits, he adds.