Medtronic 2015 Annual Report Download - page 138

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Medtronic plc
Notes to Consolidated Financial Statements (Continued)
In connection with the 2007 separation, all tax liabilities associated with Covidien business became Covidien’s tax liabilities.
Following Covidien’s spin-off of its Pharmaceuticals business to Covidien shareholders through a distribution of all the
outstanding ordinary shares of Mallinkrodt (2013 separation), Mallinckrodt became the primary obligor to the taxing authorities
for the tax liabilities attributable to its subsidiaries, a significant portion of which relate to periods prior to the 2007 separation.
However, Covidien remains the sole party subject to the tax sharing agreement with Tyco International and TE Connectivity.
Accordingly, Mallinckrodt does not share in Covidien’s liability to Tyco International and TE Connectivity, nor in the
receivable that Covidien has from Tyco International and TE Connectivity.
If any party to the Tyco tax sharing agreement were to default in its obligation to another party to pay its share of the
distribution taxes that arise as a result of no party’s fault, each non-defaulting party would be required to pay, equally with any
other non-defaulting party, the amounts in default. In addition, if another party to the Tyco tax sharing agreement that is
responsible for all or a portion of an income tax liability were to default in its payment of such liability to a taxing authority, the
Company could be legally liable under applicable tax law for such liabilities and be required to make additional tax payments.
Accordingly, under certain circumstances, the Company may be obligated to pay amounts in excess of the Company’s agreed
upon share of Covidien’s, Tyco International’s and TE Connectivity’s tax liabilities.
The Company has used available information to develop its best estimates for certain assets and liabilities related to periods
prior to the 2007 separation, including amounts subject to or impacted by the provisions of the Tyco tax sharing agreement. The
actual amounts that the Company may be required to ultimately accrue or pay under the Tyco tax sharing agreement, however,
could vary depending upon the outcome of the unresolved tax matters. Final determination of the balances will be made in
subsequent periods, primarily related to certain pre-2007 separation tax liabilities and tax years open for examination. These
balances will also be impacted by the filing of final or amended income tax returns in certain jurisdictions where those returns
include a combination of Tyco International, Covidien and/or TE Connectivity legal entities for periods prior to the 2007
separation.
In conjunction with the 2013 separation, Mallinckrodt assumed the tax liabilities that are attributable to its subsidiaries, and
Covidien indemnified Mallinckrodt to the extent that such tax liabilities arising from periods prior to 2013 exceed $200 million,
net of certain tax benefits realized. In addition, in connection with the 2013 separation, Covidien entered into certain other
guarantee commitments and indemnifications with Mallinckrodt.
See “Tax Guarantees” within Note 1 for additional discussion.
Except as described above or certain income tax related matters, the Company has not recorded an expense related to losses in
connection with these matters because any potential loss is not currently probable or reasonably estimable under U.S. GAAP.
Additionally, the Company cannot reasonably estimate the range of loss, if any, that may result from these matters.
In the normal course of business, the Company and/or its affiliates periodically enter into agreements that require one or more of
them to indemnify customers or suppliers for specific risks, such as claims for injury or property damage arising out of the
Company or its affiliates’ products or the negligence of any of their personnel or claims alleging that any of their products
infringe third-party patents or other intellectual property. The Company’s maximum exposure under these indemnification
provisions cannot be estimated, and the Company has not accrued any liabilities within the consolidated financial statements.
Historically, the Company has not experienced significant losses on these types of indemnifications.
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