Medtronic vs. Commissioner

Jurisdiction

United States, Tax Court and Eighth Circuit

Summary of Facts

Medtronic’s case revolves around determining the appropriate arm’s-length royalty for the U.S. subsidiary’s license of intellectual property (IP) necessary to manufacture implantable medical devices. The dispute primarily concerns the best transfer pricing method to use.

Key Issues

The IRS favors the Transactional Net Margin method (TNMM), while Medtronic supports the Comparable Uncontrolled Price (CUP) method. The case has seen multiple trials and appeals, with significant adjustments proposed to the methods used.

Decision and Reasoning

The Tax Court initially sided with Medtronic but was vacated by the Eighth Circuit. On remand, a hybrid “unspecified method” was proposed, combining elements of both CPM and CUT. Both parties have appealed again.

Importance and Implications

This case underscores the complexities of transfer pricing methods and the impact of regulatory compliance on multinational corporations. The outcome could influence future IRS audits and transfer pricing litigation strategies.