Medtronic officials apparently see the political blowback over their proposed $43 billion acquisition of Covidien as serious business. The company has paid $200,000 to lobbyists including former U.S. Sens. Trent Lott and John Breaux to handle issues in Congress over the deal—which has sparked controversy because it would allow Medtronic to save money on taxes by moving its headquarters to Ireland.
A lobbying disclosure report. specifically mentions the Stop Corporate Inversion Act of 2014 before the Senate Finance Committee as a target for the Breaux Lott Leadership Group—which includes Breaux, formerly a Democrat senator from Louisiana, and Lott, formerly a Republican senator and majority leader from Mississippi. Both former senators used to sit on the committee, according to Citizens for Responsibility and Ethics in Washington, which reported on the lobbying disclosure last week.
Medtronic has spent $2.84 million on lobbying fees during the first half of 2014—placing it on track to beat the $5.02 million it spent on lobbying last year, according to the watchdog group.
News of the additional lobbying comes around the same time that the Federal Trade Commission is asking for additional information and documentation around the Medtronic-Covidien deal. It is but another indication that President Obama clearly doesn't like Medtronic's plan to move its headquarters to Ireland through the purchase.
Medtronic's $43 billion acquisition of Covidien would be the largest "tax inversion" deal yet.
The second request for information extends the FTC's waiting period on considering the deal by 30 days, according to a notice Medtronic filed with the U.S. Securities and Exchange Commission on Thursday. The companies still expect the deal to close in late 2014 or early 2015.
The tax inversion deals, which have been termed the "holy grail of tax avoidance" by a number of U.S. politicians, have been picking up recently as a growing number of companies look for ways to reduce their tax burden. As many as 25 U.S. companies are considering relocating their headquarters to low-tax destinations, according to the Irish Times. The corporate tax rate in the United States is 35%—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.
Medtronic CEO Omar Ishrak defended the Covidien purchase during a recent interview with CNBC: "What I do know is for us, the structure with Covidien was first and primarily driven by strategy from a healthcare perspective, in that together we could provide more value to the healthcare system and be a much more effective combination. And then once we determined that, then we assessed the most efficient structure through which we can operate more effectively as a company."
In a recent speech in Los Angeles, Obama said, without naming names, that companies looking to move their headquarters offshore for tax benefits are "technically renouncing their U.S. citizenship." The Financial Times also quoted the President as saying: "My attitude is: I don't care if it's illegal. It's wrong... You don't get to pick the rate you pay."
Democrats in both chambers of Congress agree and are supporting a law to limit such deals in the future. One bill, supported by U.S. Treasury Secretary Jacob Lew, would be retroactive to May of this year, potentially affecting the Medtronic–Covidien deal. Recently, four Senators introduced a plan known as the "No Federal Contracts for Corporate Deserters Act," to make such deals less attractive. A number of Republicans also have expressed their disfavor for such tax deals but don't agree with Democrats on how to address the issue.
The chances of Congress passing that legislation in the near future, however, are limited.
As a result, the Obama administration is considering options to go around Congress and do away with many of the tax-shielding incentives involving corporate inversion deals, which include Medtronic's planned $43 billion acquisition of Covidien.
Enacting policies to thwart future inversion deals would help buy time as the administration plans on overhauling the U.S. tax system.
Any congressional or IRS action could give either Medtronic or Covidien the ability to step away from the deal, according to a New York Times report.
