News Feature | June 13, 2014

Medical Device Companies Stash Billions In Tax Havens

By Jof Enriquez,
Follow me on Twitter @jofenriq

Healthcare Pricing And Costs

Many of the largest U.S. corporations, including leading medical device companies, reportedly exploit legal loopholes and use accounting tricks to keep profits in tax havens abroad and avoid paying U.S. taxes, a new report suggests.

Approximately 72 percent — or roughly 362 of Fortune 500 companies — maintain subsidiaries in offshore tax havens such as Bermuda, the Bahamas, the British Virgin Islands, the Cayman Islands, and other jurisdictions that levy minimal corporate taxes on multinational corporations — if they levy taxes at all, according to a study published by the U.S. Public Interest Research Group (PIRG) Education Fund and the Citizens for Tax Justice.

“By booking profits to subsidiaries registered in tax havens, multinational corporations are able to avoid an estimated $90 billion in federal income taxes each year,” the report stated. “These subsidiaries are often shell companies with few, if any, employees, and which engage in little to no real business activity.”

The companies with some stake in the healthcare sector that reported the highest amounts of offshore money in subsidiaries included such giants as Apple ($111.3 billion), General Electric ($110 billion), Microsoft ($76.4 billion), and Google ($38.9 billion).

Some of the biggest players in the medical device sector were also included in the report. Johnson & Johnson ranked seventh overall in money held offshore with $50.9 billion held by 60 offshore subsidiaries. Abbott Laboratories was 21st with $24 billion divided among its 79 foreign subsidiaries. Medtronic ranked 27th with a reported $20.5 billion kept by 37 subsidiaries abroad. Other medical device companies mentioned in the report include:

  • Baxter International, with $12.2 billion in 12 subsidiaries
  • Boston Scientific, with $11.9 billion in 42 subsidiaries
  • 3M, with $9.7 billion in 12 subsidiaries
  • Stryker, with $7 billion in 38 foreign subsidiaries
  • Becton Dickinson, with $4.4 billion in 38 subsidiaries
  • St. Jude Medical, with $3.6 billion in 10 subsidiaries

Although the practice of booking offshore profits in tax havens has long been used by American corporations, the study said abusing current U.S. taxation laws could ultimately cost average American taxpayers more.

“Congress has left loopholes in our tax code that allow this tax avoidance, which forces ordinary Americans to make up the difference. Every dollar in taxes that corporations avoid by using tax havens must be balanced by higher taxes on individuals, cuts to public investments and public services, or increased federal debt,” the authors wrote.

Still, medical device companies are unlikely to abandon the industry practice of using tax havens due to stiff competition and legislation such as the Affordable Care Act — and its medical device excise tax — that significantly affect their bottom lines. A recent report suggested that Medtronic is preparing to buy Smith & Nephew for tax inversion purposes by moving its legal and tax base from the U.S. to the United Kingdom.