30 Day Trial

ORTHOWORLD » Other Articles of Interest

U.S. Announces Regulations to Deter Inversions

The U.S. Treasury Department announced actions that will reduce tax benefits of corporate inversions, making inversions more difficult and less appealing for U.S. companies.

Regulations will:

  • Prevent inverted companies from accessing a foreign subsidiary’s earnings while avoiding U.S. taxes through the use of strategic loans, known as “hopscotch” loans
  • Prevent inverted companies from restructuring a foreign subsidiary to access the subsidiary’s earnings tax-free
  • Close loopholes to prevent inverted companies from transferring assets from a controlled foreign company to the new parent to avoid U.S. taxes
  • Increase difficulty of inversions by enforcing the requirement that the former owners of the U.S. entity own less than 80 percent of the new combined entity (this does not apply to deals closed before September 22, 2014)

The Treasury is expected to further reduce tax benefits of inversions through additional regulatory guidance and by reviewing U.S. tax treaties and international commitments.

These actions could affect Medtronic’s acquisition of Covidien. Analysts predict Medtronic may have to borrow to finance the Covidien purchase. The company may also face negative tax consequences and restricted access to Covidien’s overseas earnings due to the action of closing the “hopscotch” loan. Also, Medtronic may have to readjust the agreement terms in order to avoid decreasing company value.

For more on M&A in the orthopaedic industry:
Best Practices for Successful M&As
M&A Tracking