IRS: Boston Scientific Corporation Owes $581 Million in Guidant Corporation Back Taxes

Published: Dec 08, 2011

Minneapolis / St. Paul Business Journal by Ed Stych, Web Producer

Boston Scientific Corp. said Wednesday the Internal Revenue Service has told the medical device maker it owes $581 million in back taxes plus interest and penalties.

The IRS's claim is based on an audit of 2004-2006 taxes of Guidant Corp., a company with a large Twin Cities presence that Boston Scientific bought for $27.5 billion in 2006.

The claim is in addition to a similar $525 million assessment made by the IRS for Guidant's 2001-2003 taxes. That claim was made a year ago and is currently being challenged by Boston Scientific in U.S. Tax Court.

The two assessments add up to more than $1.1 billion — potential liabilities incurred before Boston Scientific owned Guidant.

Natick, Mass.-based Boston Scientific (NYSE: BSX) said in a filing with the U.S. Securities and Exchange Commission

that it disagrees with the IRS' conclusions and will contest them in U.S. Tax Court. It said it won't make any payments until the courts rule on the cases.

Boston Scientific reported in the SEC filing that the primary issue with the IRS involves pricing related to the transfer of technology-license agreements between Guidant's domestic and foreign subsidiaries.

“We do not agree with the transfer-pricing methodologies applied by the IRS or its resulting assessment,” Boston Scientific said in its filing.

Guidant made defibrillators and pacemakers at its offices in Arden Hills. Boston Scientific continues to operate that facility, although the Guidant name has gone away.

The tax assessment dispute with the IRS is another event in a string of Guidant-related headaches for Boston Scientific.

In September, Boston Scientific agreed to pay the federal government $9.25 million to resolve allegations that Guidant overcharged government programs by failing to fulfill its obligations under warranties covering defibrillators and pacemakers.

In January of this year, a federal judge approved a deal for Boston Scientific to pay $296 million to settle federal charges that Guidant failed to report faulty defibrillators. The defects were associated with at least 13 deaths.

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