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to gain an income tax advantage. With a corporate income tax rate of 40%, the US currently has the highest rate of any country in the developed world. As such, the current environ- ment has made such tax inversions an attractive option for US companies; roughly 47 companies have re-incorporated in a foreign country since 1982, including 16 since 2012, according to data compiled by Bloomberg. Inversions are com- monly executed through a cross-border transac- tion in which US compa- nies purchase a foreign operation at least 25% as large as itself, with the shareholders of the foreign company owning more than 20% of the combined operation post- transaction. Inversions are particularly attractive for medical technology and pharmaceutical compa- nies who derive a large portion of profi ts from intellectual property, as those assets can easily be transferred to foreign subsidiaries in low income tax environments. Notable inversion transactions include Medtronic’s ac- quisition of Ireland-based Covidien as discussed previously, and Abbott Laboratories’ $5.3 billion divestiture of a share of its generics pharmaceuti- cals business overseas to Mylan Inc. Tax inversion transactions continue to generate controver- sy among a number of US politicians, as both Republicans and Democrats have pushed for tax code reform. On Sept. 22, 2014, the US Treasury announced a series of measures to discourage US companies from reincorporating overseas. The most recent tax inversion rules prohibit the following actions from US companies during or following a transaction:


Company


Abbott Laboratories Alere Inc.


Baxter International Inc.


Becton, Dickinson and Company bioMérieux SA


Boston Scientific Corporation CareFusion Corporation Coloplast A/S CR Bard Inc.


DENTSPLY International Inc. Edwards Lifesciences Corp. Getinge AB Hologic Inc.


Intuitive Surgical, Inc. Medtronic plc


Nipro Corporation Smith & Nephew plc Sonova Holding AG St. Jude Medical Inc. Stryker Corporation Sysmex Corp.


Teleflex Incorporated Terumo Corporation


Varian Medical Systems, Inc. Zimmer Holdings, Inc.


Total Total


• Accessing a foreign subsidiary’s earnings while defer- ring US tax through the use of creative loans, com- monly known “hopscotch loans.”


Table 1: 25 Largest Public Medical Device Companies ($ in mm) 2013 Revenue $21,848


25 Largest Public Medical Device Companies ($ in mm)


2014 Revenue $20,247


$3,029


$15,259 $8,169 $2,187 $7,143 $3,556 $2,184 $3,020 $2,951 $2,046 $3,933 $2,458 $2,244


$16,743 $2,687 $4,351 $2,146 $5,501 $9,021 $1,655 $1,685 $4,297 $2,976 $4,623


$135,712 $135,712


$2,587


$16,671 $8,468 $2,210 $7,380 $4,081 $2,059 $3,324 $2,957 $2,323 $3,408 $2,549 $2,116


$17,255 $2,843 $4,617 $2,085 $5,605 $9,675 $1,757 $1,802 $4,051 $3,050 $4,673


$137,792 $137,792


• Restructuring a foreign subsidiary in order to access the subsidiary’s earnings tax-free.


• Holding less than 80% of the newly merged entity. Following the announcement by the Treasury Department, several transactions were called off primarily due to uncer- tainties surrounding tax inversion regulation. These included AbbVie Inc.’s bid for Irish competitor Shire Plc, Auxilium Pharmaceuticals Inc.’s proposed merger with QLT Inc., and Saliz Pharmaceuticals Ltd.’s proposed acquisition of Italy’s Cosmo Pharmaceuticals SpA. In the aftermath of the new


14 — Medical Manufacturing 2015


Source: Capital IQ, PMCF Research


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