TE Connectivity could pay $331M in back Tyco taxes
It could be years down the road, but if the Internal Revenue Service wins a legal battle against Tyco International Ltd., its former subsidiary, TE Connectivity Ltd., could pay roughly $331 million in back taxes and fines, according to filings with the U.S. Securities and Exchange Commission.
TE Connectivity, which has engineering and administrative offices in Central Pennsylvania, said in a filing with the SEC that its share of the nearly $1.1 billion in disputed taxes and fines is 31 percent. The amount of taxes owed could be more depending on the how courts rule, the company said.
Tyco International and its subsidiaries had made significant amounts of loans to each other between 1997 and 2000, resulting in more than $2.7 billion of interest deductions on its taxes, according to the filing.
The IRS has determined that such transactions are not debt and therefore taxable and the companies owe back taxes, something Switzerland-based Tyco disputes, according to the filing. Tyco is expected to appeal the IRS decision in U.S. Tax Court.
"Resolution of this matter in the U.S. Tax Court could take several years and no payments to the IRS with respect to these matters would be required until the matter is fully and finally resolved," TE Connectivity said in its filing.
If the decision holds, then there could be taxes owed on an additional $6.6 billion worth of interest deductions at the companies for years after 2000, according to the filing.
None of that is good news for TE Connectivity, even if it's years away.
"However, as the ultimate outcome is uncertain and if the IRS were to prevail on its assertions, our share of the assessed tax, deficiency interest, and applicable withholding taxes and penalties could have a material adverse impact on our results of operations, financial position, and cash flows," the company said in the filing.
The company, formerly known as Tyco Electronics, was spun off from Tyco International in 2007 along with other subsidiaries. The break up followed 2005's conviction of former Tyco executives L. Dennis Kozlowski and Mark H. Swartz for stealing hundreds of millions from the company. Koslowski was CEO throughout the 1990s.
TE Connectivity will release its third-quarter earnings report July 24. TE Connectivity, based in Switzerland with U.S. headquarters in Berwyn, Pa., trades its shares on the New York Stock Exchange under the ticker symbol TEL.