Last week, Medtronic Plc suffered a legal setback in its bid to avoid a $1.4 billion U.S. tax bill—a ruling that may have costly implications for other multinationals battling the Internal Revenue Service over the use of overseas payments to lower their taxes.

Companies including Facebook Inc. and Coca-Cola Co. have been fighting the IRS for years over strategies related to so-called transfer pricing—a way that some companies cut their tax liabilities by assigning lower prices for things like intellectual property that they shift to subsidiaries in low-tax jurisdictions such as Ireland or the Cayman Islands.

A federal appeals court on Aug. 16 sent the Medtronic case back to the U.S. Tax Court, saying the judge in a 2016 decision against the world's biggest medical device maker hadn't adequately explained how she'd reached her conclusion. No dates have been set yet for when the case will return to Tax Court.

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