Kerrigan is a new entry this year
US Tax Court Judge Kathleen Kerrigan has made it in this
year's Global Tax 50 for her ruling in the Medtronic
case, one of 2016's most significant transfer pricing
The Internal Revenue Service (IRS) accused Medtronic, a
US-based manufacturer of medical devices, of owing US taxes
from its Puerto Rico operations. In a 144-page ruling, Kerrigan
said that the IRS's transfer pricing adjustments, amounting to
almost $1.4 billion for the tax years 2005 and 2006, were
"arbitrary, capricious, or unreasonable".
The decade-long dispute was over whether Medtronic's Puerto
Rico operations were an autonomous manufacturer, or, as the IRS
claimed, playing a minor role in the process of developing and
manufacturing products. Medtronic argued that its Puerto Rican
operations contributed to the design process, had a role in the
product development, and bore market risks.
"Interestingly, the taxpayer and the IRS had reached an
agreement on the royalty rates in a prior audit cycle, which
resulted in a memorandum of understanding (MoU) between the
parties regarding the royalties. However, after completing its
examination of Medtronic's 2005 and 2006 tax returns, the IRS
departed from the approach in the MoU and asserted a large
royalty adjustment, which prompted Medtronic to then assert a
refund based on its pre-MoU pricing," Andrew Kim and Larissa
Neumann from Fenwick & West said in an article written for
International Tax Review.
The ruling will be an important reference point for future
transfer pricing cases involving how intellectual property and
income are shared between subsidiaries of the same company.
Fenwick & West's Kim and Neumann described it as a
"significant victory for the taxpayer".
Kerrigan, a former partner at a law firm and tax counsel for
Senator John Kerry, was appointed to be a judge of the US Tax
Court in 2012 by US President Barack Obama. She was born in
Springfield, Massachusetts, and is set to serve as a judge
until May 3 2017.