For Medtronic, the IRS comes calling -- late

When Medtronic Inc. arranged to trim its tax bill by licensing intellectual property to a Swiss subsidiary, Bill Clinton was campaigning for his second term as president and "Braveheart" was playing in movie theaters.

Roughly 12 years later, the Internal Revenue Service informed the Minneapolis-based medical-technology maker hat the arrangement was improper -- and that it owes an additional $53.6 million in taxes as a result. Medtronic disputed the claim and started proceedings in U.S. Tax Court, where it has requested a trial in Chicago.

Medtronic's case highlights the tension between companies seeking to deliver increasing profits to shareholders using so-called "transfer pricing," and regulators struggling to rein in a practice blamed for cheating the government of badly needed revenue.

U.S. companies regularly use transfer pricing to reduce their tax burden by shifting intellectual property abroad, in order to avoid relatively high corporate tax rate in this country. As long as the companies license the intellectual property to a foreign subsidiary at a reasonable price, they're likely to pass muster.

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