Global Tax 50 2016: Kathleen Kerrigan

Kathleen 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 judgments.

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.