Both Medtronic and Boston Scientific have been hit with multimillion dollar tax claims by the US Internal Revenue Service (IRS). In each case, the allegations have to do with transfer pricing, where income is allocated to various branches outside of the US, allowing the company to bypass some of the taxes that would apply domestically. Combined, the two companies could owe the IRS approximately $2 billion, although both companies plan to contest the allegations in US Tax Court. For Boston Scientific, these allegations represent just another of a string of headaches the company has had since its 2006 acquisition of Guidant the latest $580 million dollar tab has to do with Guidant's 2004 to 2006 taxes.
But is the medtech industry alone in these aggressive offshore profit-shifting practices? It doesn't look like it. In fact, according to a May 2011 report by J.P. Morgan Chase, the IRS could be owed taxes on offshore earnings totalling at least $1.38 trillion by companies including Microsoft and Pfizer along with the medical device giants. The recent Olympus scandal over inappropriate accounting has, however, certainly not helped medtech's image. Accusations of companies paying doctors illegal kickbacks to use and promote devices also continue to plague the industry.
It would be hard to say though that any large industry is scandal-free.