James F. McDonough
Of Counsel
732-568-8360 jmcdonough@sh-law.comFirm Insights
Report Shows How Much Walgreens Stands To Gain with Inversion
Author: James F. McDonough
Date: June 18, 2014
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Walgreens is just one of many U.S. companies to consider lowering its tax bill by moving abroad. This move, called an “inversion,” involves purchasing a foreign company and using it to alter the corporate structure so that the U.S. company is technically a corporate resident of the low-tax foreign country.
Walgreens has been considering the move since April, under pressure from shareholders such as Stefano Pessina, who is Walgreens’ largest shareholder and the executive chairman of Alliance Boots, the company with which it would merge, according to a new report from Americans for Tax Fairness.
A Walgreens inversion would cost the U.S. more than $4 billion over the course of five years in lost tax revenue, the report found. At the same time, the company would continue to receive significant benefit from U.S. taxpayers. Approximately $16.7 billion of Walgreens’ $72 billion in 2013 sales came from Medicare and Medicaid, government-funded healthcare programs.
The report also makes the argument that an inversion might give Walgreens an unfair advantage. Between 2008 and 2012, Walgreens paid a U.S. tax rate of 31 percent – close to the official tax rate of 35 percent. During the same period, competitor CVS Caremark paid an effective tax rate of 34 percent, and is currently not making an effort to move offshore. If Walgreens were to complete an inversion, its tax rate would sink to about 20 percent, which could give it an unfair advantage over competitors, or force them to make the same move.
Some shareholders oppose the move, including CtW Investment Group, which owns less than 1 percent of the company’s shares, according to The New York Times. The group sent a letter to Walgreens’ management explaining its position, citing possible removal from the S&P 500, diminished shareholder protections in Switzerland and reputational risks as reasons not to carry out the inversion.
If you have any questions about this post or would like to discuss your company’s tax,trust, and estate matters , please contact me, James F. McDonough at ScarinciHollenbeck.com.
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