Medtronic Stockholders May Advance Claims on Tax Inversion

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By Che Odom

Shareholders of Medtronic Inc. may proceed with claims related to taxes on capital gains incurred after the company completed its 2014 inverse merger with Covidien PLC, according to a ruling by Minnesota’s highest court.

The Minnesota Supreme Court ruled Aug. 16 that the shareholders may be able to show direct, rather than derivative, harm when it comes to capital gains tax claims, because the tax liability was imposed on them solely in their status as shareholders ( In re Medtronic, Inc. S’holder Litig. , 2017 BL 286515, Minn., A15-0858, 8/16/17 ).

The justices, however, affirmed a lower court’s dismissal of claims of injuries due to excise tax reimbursements granted Medtronic directors and officers. Those injuries, if any, are derivative, which means the harm caused to shareholders derived from harm sustained by the company, the court ruled.

Corporate reimbursement of an excise-tax liability resulting from the transaction “is at bottom an alleged waste of corporate assets,” the opinion said.

Medtronic bought Covidien, a public Irish company, by first establishing an Ireland-based company, Medtronic PLC, which then took over both Covidien and Minnesota-based Medtronic Inc. This inversion purchase created a taxable event for Medtronic under federal and state laws, the court said.

Its shareholders sued in Minnesota court, asserting federal and state claims.

Medtronic PLC, which has a market cap of about $115 billion, develops therapeutic and diagnostic medical products.

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