Read the case study and answer to questions According to Lynnley Browning and Sony Kassam report on Bloomberg, published on August 20, 2018, Medtronic, the Dublin, Ireland-based company, with an operational headquarters in Minneapolis, transferred 2.2 billion USD intercompany licenses to a Puerto Rican manufacturing affiliate for the tax years 2005 and 2006. The Internal Revenue Services (IRS) of the USA claims that the companys actions are classical multinational shifting income from its highly profitable U.S. operations and intangibles to an offshore subsidiary in a tax haven by charging an artificially low rate for the intangibles. The agency claims that Medtronic undervalued royalty rates paid to it by the Puerto Rican affiliate for intellectual property used in making medical devices there. A recent ruling by a federal appeals court on Aug. 16 2019 sent the Medtronic case back to the U.S. Tax Court for review. While Medtronic has already made a 1.1 billion USD payment to the IRS to cover for the possible taxes, the company could now owe more if the court decides otherwise during the review. The annual report for the year 2019 of the company states: In March 2009, the IRS issued its audit report for Medtronic Inc. for fiscal years 2005 and 2006. Medtronic, Inc. reached agreements with the IRS on some, but not all matters related to 3 these fiscal years. The remaining unresolved issue for fiscal years 2005 and 2006 relates to the allocation of income between Medtronic, Inc. and its wholly-owned subsidiary operating in Puerto Rico, which is one of our key manufacturing sites. An adverse outcome in this matter could materially and adversely affect our business, financial condition, results of operations and cash flows. Because Medtronic plc is organized under the laws of Ireland, we would generally be classified as a foreign corporation under the general rule that a corporation is considered tax resident in the jurisdiction of its organization or incorporation for U.S. federal income tax purposes. Even so, the IRS may assert that we should be treated as a U.S. corporation (and, therefore, a U.S. tax resident) for U.S. federal income tax purposes pursuant to Section 7874 of the U.S. Internal Revenue Code of 1986, as amended (the Code) 1. Describe what type of profit shifting methodology the company used for the transaction discussed and investigated by IRS? 2. What principle under OECD Model Tax Convention and focal point for Base Erosion and Profit Shifting (BEPS) program needed to be met in this transaction? Explain this principle, how it works and what might have gone wrong in the transaction between the different branches of the company? 3. To your understanding, why corporates like Medtronics proceed to profit shifting and how this affects the companies and the countries involved?