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U.S. Tax court applies an unspecified method to increase medtronic royalty rate

In the recent case of Medtronic, Inc. and Consolidated Subsidiaries v. Commissioner [T.C. Memo. 2022-84] (“Medtronic III”), the U.S. Tax Court recently released its second opinion regarding the determination of the arm’s length rate for a licensing agreement (“Covered transaction”) between Medtronic Inc. (“Medtronic U.S.”) and its foreign subsidiary, Medtronic Puerto Rico (“Medtronic PR”) for the tax years 2005 and 2006 (“Covered years”).

The Eighth Circuit Court of Appeal ruled that the Tax Court’s factual findings in Medtronic I were insufficient to evaluate the TaxCourt’s determination that the Pacesetter agreement was an appropriate comparable uncontrolled transaction.

The decision emphasizes the significance of choosing the best suitable transfer pricing method(s) for fact-based related-party transaction analysis. The choice of approach must be supported by reliable data and take each case’s facts and circumstances into account.

Additionally, it suggests that transactions involving the use or transfer of intangible property may be