We have news of another potential merger in the DI portfolio. At the start of this week, Medtronic Inc. (MDT) reached an agreement to purchase Covidien Plc (COV). Details about the merger can be found in the News and Notes section below. The announcement has made headlines less for the merger itself, however, and more for Medtronic’s move of its corporate headquarters to Ireland.
Ireland is known for its low corporate tax rate and this fact has been brought up in articles about the merger. Due to the higher scrutiny being given to corporate tax issues lately, we don’t know if this will present a hurdle for Medtronic or not. There are business reasons to justify the merger as well. Nonetheless, Ireland’s tax rate is what is making the headlines right now.
If the merger is completed, the tax status of the dividend would change. Medtronic’s dividend would go from being domestic to foreign. We are waiting for Medtronic to give guidance on the tax treatment of the dividend before explaining how the change will impact U.S. investors. We can tell you, however, that the United States does a have a tax treaty with Ireland.