Medtronic to pay $63m tax penalty for Irish address

Medtronic plans to pick up a $25m tax bill for chief executive Omar Ishrak, the cost of a special penalty imposed by Congress on executives who shift their company’s tax domiciles out of the US.

The company is also paying a $38m tab for the rest of its top officers and directors, Minneapolis-based Medtronic said in a filing with US regulators. The tax penalty arises from Medtronic’s plan to adopt an Irish address as part of its takeover of Covidien Plc.

The requirement stems from a 2004 law meant to discourage CEO’s from lowering their companies’ tax bills by shifting their legal addresses out of the US. It imposes an excise tax, currently 15%, on the value of any restricted stock or unexercised options the executives hold at the time of the transaction. “It was clearly designed to be punitive,” said Paul McConnell, MD at Board Advisory, an executive compensation firm, pointing out companies regularly cover such costs for their executives. “It’s clearly a tax directed at these executives to prevent this from happening.”