The U.S. Tax Court today released a 144-page memorandum opinion concerning the treatment of income from intercompany licenses for intangible property required to manufacture certain medical devices and leads.
The IRS determined deficiencies in the taxpayer’s federal income tax exceeding $548 million for 2005 and $810 million for 2006.
At issue was whether the income related to the intercompany licenses needed to be reallocated under section 482 to the U.S. company from its subsidiary in Puerto Rico, and whether a related party in Europe made arm’s length payments to the U.S. entity or accrued royalties in excess of arm’s length to manufacture devices sold to another U.S. entity pursuant to a supply agreement. Another question posed was whether, alternatively, the taxpayer and related entities transferred intangible property compensable under section 367(d) when the U.S. entity restructured its Puerto Rican operations.
The case is: Medtronic, Inc. v. Commissioner, T.C. Memo. 2016-112 (June 9, 2016)
The purpose of this report is to provide text of the 144-page opinion. Read the Tax Court’s memorandum opinion [PDF 466 KB]