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Walgreen Ponders $4 Billion Tax Dodge
Walgreen, the biggest U.S. retail drugstore chain, is considering decamping to Switzerland in a quest for bigger tax breaks, just two years after reaping a hefty package of Illinois tax credits in exchange for keeping corporate jobs in the state.
Such a move, through a maneuver called an inversion, would cost the U.S. treasury $4 billion in tax revenue over the next five years, according to a new report by Americans For Tax Fairness, a tax reform advocacy group. It also may prompt other U.S. retailers, which typically pay high tax rates compared with large multinationals like Apple and General Electric, to seek foreign acquisitions in order to dramatically lower their bills.
Americans For Tax Fairness calculated Walgreen's possible tax savings based on determinations by outside analysts, who figured the company could lower its rate to about 20 percent from the current 35 percent if it were to incorporate in Switzerland. (Reincorporating abroad would not necessarily mean substantive changes in where company personnel and operations are housed.)
Because Walgreen's bottom line is significantly bolstered by taxpayer-funded Medicare and Medicaid drug benefits, accounting for one-third of all pharmacy sales, relocating offshore would represent an especially egregious exploitation of the leaky U.S. tax code, Americans for Tax Fairness concludes in the new report.
"Our research shows that Walgreens relies heavily on the U.S. taxpayer for its profits, and that an inversion would deprive our country of significant resources while giving the company an unfair advantage over its competitors," the report says.
A Walgreen inversion may be possible next year, should shareholders approve the purchase of the the Swiss company Alliance Boots, Europe's largest pharmaceutical wholesaler and retailer. In 2012, Walgreen bought a 45 percent stake in the company. At a meeting in April in Paris, some Walgreen shareholders pushed for an inversion, touting the potential tax savings, according to the new report. This seemed to prompt a shift in tone from company executives, who had previously downplayed the possibility of an inversion.
"We’ve never been a proponent of paying more taxes than we have to," said Rick Hans, a Walgreens vice president, at a later conference, according to the new report.
On Wednesday, in response to the report, Walgreens issued a statement. "As we’ve said before, we continue to analyze a number of issues as we move toward the window for exercising the second step of our transaction with Alliance Boots, and we will do what is in the best long-term interest of our company and its shareholders," spokesman James Graham said in an email.
Inversions are possible when U.S. companies incorporate in another country, so long as 20 percent of company stock is owned by a foreign entity. After the inversion, the original U.S. company becomes a subsidiary of the foreign parent company, yet the foreign company is controlled by the shareholders of the original U.S. corporation.
The tax savings of moving a corporate address abroad can be enormous. Companies are no longer on the hook for paying U.S. taxes on profits earned abroad, potentially a huge benefit for companies with big overseas sales. Walgreens, because its stores are located primarily in the U.S., would likely realize big tax savings in a different way: By shifting large amounts of debt from its foreign operation to its domestic operation in order to offset profit, said Frank Clemente, the executive director of Americans for Tax Justice.
Recently, the U.S. pharmaceutical giant Pfizer tried -- and failed -- to acquire the British drug company AstraZeneca, a deal at least partly motivated by tax savings that might be realized through an inversion.
Over the last decade, tax aversion has become a standard corporate business practice. A recent study found that Fortune 500 companies have created a whopping 7,827 offshore shell companies to stash nearly $2 trillion in places like Bermuda and the Cayman Islands in order to avoid paying U.S. taxes. One common way U.S. companies exploit such shell companies is by transferring patents or trademarks abroad, and then paying their subsidiary licensing fees for the right to use those patents, thus reducing domestic profit.
U.S. retailers, though, typically pay taxes at or close to the 35 percent corporate rate. That's because they book all or most of their revenue in the U.S. and have few options for making it seem as if that revenue was earned elsewhere.
Though it is likely that Walgreen will complete its purchase of Alliance Boots, it is difficult to evaluate the odds the company will attempt an inversion. The New York Times has reported that at least one shareholder, the CtW Investment Group, cited the risk of removal from the S&P 500 and other stock indices as an argument for why the company should remain headquartered in the U.S.
The CtW group owns less than 1 percent of Walgreen's shares.
http://www.huffingtonpost.com/2014/06/11/walgreen-offshore-taxes_n_5481596.html
Such a move, through a maneuver called an inversion, would cost the U.S. treasury $4 billion in tax revenue over the next five years, according to a new report by Americans For Tax Fairness, a tax reform advocacy group. It also may prompt other U.S. retailers, which typically pay high tax rates compared with large multinationals like Apple and General Electric, to seek foreign acquisitions in order to dramatically lower their bills.
Americans For Tax Fairness calculated Walgreen's possible tax savings based on determinations by outside analysts, who figured the company could lower its rate to about 20 percent from the current 35 percent if it were to incorporate in Switzerland. (Reincorporating abroad would not necessarily mean substantive changes in where company personnel and operations are housed.)
Because Walgreen's bottom line is significantly bolstered by taxpayer-funded Medicare and Medicaid drug benefits, accounting for one-third of all pharmacy sales, relocating offshore would represent an especially egregious exploitation of the leaky U.S. tax code, Americans for Tax Fairness concludes in the new report.
"Our research shows that Walgreens relies heavily on the U.S. taxpayer for its profits, and that an inversion would deprive our country of significant resources while giving the company an unfair advantage over its competitors," the report says.
A Walgreen inversion may be possible next year, should shareholders approve the purchase of the the Swiss company Alliance Boots, Europe's largest pharmaceutical wholesaler and retailer. In 2012, Walgreen bought a 45 percent stake in the company. At a meeting in April in Paris, some Walgreen shareholders pushed for an inversion, touting the potential tax savings, according to the new report. This seemed to prompt a shift in tone from company executives, who had previously downplayed the possibility of an inversion.
"We’ve never been a proponent of paying more taxes than we have to," said Rick Hans, a Walgreens vice president, at a later conference, according to the new report.
On Wednesday, in response to the report, Walgreens issued a statement. "As we’ve said before, we continue to analyze a number of issues as we move toward the window for exercising the second step of our transaction with Alliance Boots, and we will do what is in the best long-term interest of our company and its shareholders," spokesman James Graham said in an email.
Inversions are possible when U.S. companies incorporate in another country, so long as 20 percent of company stock is owned by a foreign entity. After the inversion, the original U.S. company becomes a subsidiary of the foreign parent company, yet the foreign company is controlled by the shareholders of the original U.S. corporation.
The tax savings of moving a corporate address abroad can be enormous. Companies are no longer on the hook for paying U.S. taxes on profits earned abroad, potentially a huge benefit for companies with big overseas sales. Walgreens, because its stores are located primarily in the U.S., would likely realize big tax savings in a different way: By shifting large amounts of debt from its foreign operation to its domestic operation in order to offset profit, said Frank Clemente, the executive director of Americans for Tax Justice.
Recently, the U.S. pharmaceutical giant Pfizer tried -- and failed -- to acquire the British drug company AstraZeneca, a deal at least partly motivated by tax savings that might be realized through an inversion.
Over the last decade, tax aversion has become a standard corporate business practice. A recent study found that Fortune 500 companies have created a whopping 7,827 offshore shell companies to stash nearly $2 trillion in places like Bermuda and the Cayman Islands in order to avoid paying U.S. taxes. One common way U.S. companies exploit such shell companies is by transferring patents or trademarks abroad, and then paying their subsidiary licensing fees for the right to use those patents, thus reducing domestic profit.
U.S. retailers, though, typically pay taxes at or close to the 35 percent corporate rate. That's because they book all or most of their revenue in the U.S. and have few options for making it seem as if that revenue was earned elsewhere.
Though it is likely that Walgreen will complete its purchase of Alliance Boots, it is difficult to evaluate the odds the company will attempt an inversion. The New York Times has reported that at least one shareholder, the CtW Investment Group, cited the risk of removal from the S&P 500 and other stock indices as an argument for why the company should remain headquartered in the U.S.
The CtW group owns less than 1 percent of Walgreen's shares.
http://www.huffingtonpost.com/2014/06/11/walgreen-offshore-taxes_n_5481596.html
Stock futures (/ES) are pointing to a higher open after Monday saw modest losses. Positive quarterly earnings are propping up equities despite the ongoing geopolitical turmoil in Gaza and Ukraine. Investors face a busy day on the economic data and corporate front, with numerous Blue Chip companies set to report quarterly results. The highlight of today’s economic news is a report on June inflation in the form of the CPI. Option volatility rose modestly yesterday on the heels of small losses for stocks. The CBOE Volatility Index (VIX) should fall back to its recent support level at $12 today if equities remain higher.
‘Risk-On’ momentum may be in favor today as Treasuries are lower ahead of the stock open. Demand for bonds is still strong and trending higher despite the gains in stocks. The 10-year note is down near the 2.48% level and continues to be under pressure on the Treasury strength. Overseas action was positive as both Asian and European markets are higher in tandem with gains in the U.S. Also on tap are existing home sales, the Richmond Fed index, May home prices from the FHFA, and weekly chain store sales, which were down slightly. More earnings news is out today, joining a heavy list for the week. Highlighting are Apple (AAPL), Microsoft (MSFT), McDonald's (MCD), Coca-Cola (KO), Lockheed Martin (LMT), and Verizon (VZ).
Stock Stories:
Netflix (NFLX) – Streaming – The internet streaming company reported generally in-line results last night although profits did expand. Expansion to other countries lowered forward estimates but international growth is the company’s focus. The shares are up only slightly in the pre-market but the option market had priced in a move of over 6%.
Chipotle (CMG) –I’m calling it!– The ‘Gourmet’ Burrito chain posted another quarter of better than expected earnings last night after the close. The company continues its meteoric growth rise but valuations are getting lofty. The stock is up 10% in the premarket, which is above the expected 6% move.
Major Economic Reports:
6:30 am CT – NFIB Small Business Optimism Index
6:45 am CT – GS Store Sales – Down 0.4%
7:30 am CT– Consumer Price Index (CPI)
8:00 am CT – FHFA House Price Index
9:00 am CT – Existing Home Sales
9:00 am CT – Richmond Fed Mfg. Index
‘Risk-On’ momentum may be in favor today as Treasuries are lower ahead of the stock open. Demand for bonds is still strong and trending higher despite the gains in stocks. The 10-year note is down near the 2.48% level and continues to be under pressure on the Treasury strength. Overseas action was positive as both Asian and European markets are higher in tandem with gains in the U.S. Also on tap are existing home sales, the Richmond Fed index, May home prices from the FHFA, and weekly chain store sales, which were down slightly. More earnings news is out today, joining a heavy list for the week. Highlighting are Apple (AAPL), Microsoft (MSFT), McDonald's (MCD), Coca-Cola (KO), Lockheed Martin (LMT), and Verizon (VZ).
Stock Stories:
Netflix (NFLX) – Streaming – The internet streaming company reported generally in-line results last night although profits did expand. Expansion to other countries lowered forward estimates but international growth is the company’s focus. The shares are up only slightly in the pre-market but the option market had priced in a move of over 6%.
Chipotle (CMG) –I’m calling it!– The ‘Gourmet’ Burrito chain posted another quarter of better than expected earnings last night after the close. The company continues its meteoric growth rise but valuations are getting lofty. The stock is up 10% in the premarket, which is above the expected 6% move.
Major Economic Reports:
6:30 am CT – NFIB Small Business Optimism Index
6:45 am CT – GS Store Sales – Down 0.4%
7:30 am CT– Consumer Price Index (CPI)
8:00 am CT – FHFA House Price Index
9:00 am CT – Existing Home Sales
9:00 am CT – Richmond Fed Mfg. Index
If the taxes weren't so high for corporation to repatriate those offshore profits, perhaps they would reinvest in the US (creating jobs etc)
Under the U.S. tax system, companies owe the federal government based on their worldwide income. They can defer taxes on income earned overseas until they repatriate it, giving companies an incentive to book profits outside the U.S. and stockpile them there.
"As of earlier this year, 307 large U.S.-based companies held $1.95 trillion in accumulated profits outside the U.S., up 11.8 percent from a year earlier. Among the companies with the largest stockpiles are Apple Inc. (AAPL), Microsoft Corp. (MSFT) and Pfizer Inc. (PFE)"
http://www.bloomberg.com/news/2014-06-09/repatriation-tax-holiday-would-cost-u-s-95-8-billion.html
Under the U.S. tax system, companies owe the federal government based on their worldwide income. They can defer taxes on income earned overseas until they repatriate it, giving companies an incentive to book profits outside the U.S. and stockpile them there.
"As of earlier this year, 307 large U.S.-based companies held $1.95 trillion in accumulated profits outside the U.S., up 11.8 percent from a year earlier. Among the companies with the largest stockpiles are Apple Inc. (AAPL), Microsoft Corp. (MSFT) and Pfizer Inc. (PFE)"
http://www.bloomberg.com/news/2014-06-09/repatriation-tax-holiday-would-cost-u-s-95-8-billion.html
http://www.sfchronicle.com/opinion/reich/article/Tax-dodge-should-cost-corporations-their-5631471.php
".......Last year, the Government Accountability Office examined corporate tax returns in detail and found that in 2010, profitable corporations headquartered in the United States paid an effective federal tax rate of 13 percent on their worldwide income, 17 percent including state and local taxes. Some pay no taxes at all.
One tax dodge often used by multinational companies is to squirrel away their earnings abroad in foreign subsidiaries located in countries where taxes are lower. The subsidiary merely charges the U.S. parent inflated costs, and gets repaid in extra-fat profits.
But apparently that's not enough for some companies. They want to reduce their U.S. taxes even further by becoming foreign companies. They'll merge with foreign competitors headquartered in another nation where taxes are lower, and reincorporate there.
For example, Walgreen Co., the largest drugstore chain in the United States with more than 8,200 stores spread across the nation, is on the verge of moving its corporate headquarters to Switzerland as part of a merger with Alliance Boots, the European drugstore chain.
......By treaty, the U.S. government can't (and shouldn't) discriminate against foreign corporations offering deals as good as, if not better than, American companies offer. So if Walgreens, as a Swiss company, continues to receive Medicaid and Medicare payments as well as, say, CVS, it's likely that Walgreens will continue to earn almost a quarter of its $72 billion annual revenues directly from the U.S. government......"
".......Last year, the Government Accountability Office examined corporate tax returns in detail and found that in 2010, profitable corporations headquartered in the United States paid an effective federal tax rate of 13 percent on their worldwide income, 17 percent including state and local taxes. Some pay no taxes at all.
One tax dodge often used by multinational companies is to squirrel away their earnings abroad in foreign subsidiaries located in countries where taxes are lower. The subsidiary merely charges the U.S. parent inflated costs, and gets repaid in extra-fat profits.
But apparently that's not enough for some companies. They want to reduce their U.S. taxes even further by becoming foreign companies. They'll merge with foreign competitors headquartered in another nation where taxes are lower, and reincorporate there.
For example, Walgreen Co., the largest drugstore chain in the United States with more than 8,200 stores spread across the nation, is on the verge of moving its corporate headquarters to Switzerland as part of a merger with Alliance Boots, the European drugstore chain.
......By treaty, the U.S. government can't (and shouldn't) discriminate against foreign corporations offering deals as good as, if not better than, American companies offer. So if Walgreens, as a Swiss company, continues to receive Medicaid and Medicare payments as well as, say, CVS, it's likely that Walgreens will continue to earn almost a quarter of its $72 billion annual revenues directly from the U.S. government......"
“For every action, there is an equal and opposite reaction.”
We can’t complain about Tax Breaks for Major Corporations then complain when they decide to move to another country where they can get a better deal.
We can’t complain about Tax Breaks for Major Corporations then complain when they decide to move to another country where they can get a better deal.
We'll see what Walgreen does when Cal taxpayer $$ are no longer used to purchase Rx there. They can ponder where to hide their 0% profits.
The problem is that even if they move outside the country, they will still have lobbyists affecting what happens here. That doesn't seem right, does it ?
"we will do what is in the best long-term interest of our company and its shareholders," spokesman James Graham said in an email"
Nothing like being shareholder friendly.
Obviously, US corporate taxes rates are to high, we are no longer competitive on the global stage. Not to mention the anti-business atmosphere this administration has created.
Nothing like being shareholder friendly.
Obviously, US corporate taxes rates are to high, we are no longer competitive on the global stage. Not to mention the anti-business atmosphere this administration has created.
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