Pharmacy giant Walgreens announced this week that it will buy 55 percent of European retailer, Alliance Boots, for $15.26 billion. Under the terms of the deal Walgreens’ corporate headquarters will remain in the United States. This move is largely a response to vociferous opposition to a previous configuration of the deal whereby Walgreens would have moved its headquarters to either the United Kingdom or Switzerland —- and a much lower corporate tax rate.
Walgreens President and Chief Executive Officer Greg Wasson, who will remain in that role in the new holding company, told reporters from the Chicago Tribune that a so-called corporate “inversion,” which would have moved its headquarters overseas in part to take advantage of a lower corporate tax rate, wasn’t in the best long-term interest of shareholders. The company’s board, in extensive analysis, “could not arrive at a structure that would provide a high level of confidence it would withstand a review” by the IRS.
More importantly, it didn’t pass muster with thousands of activists, unions, members of Congress or President Barack Obama. Nor should it have.
Walgreens’ putative “inversion” is a technique that corporation have used for decades to flout U.S. tax obligations while still enjoying all the benefits and protections of operating in this country.
Because the U.S. is one of only a handful of countries that charge taxes on income gained overseas, relocating a corporate headquarters often prevents what corporate boards might construe as double-taxation.
James Hines, a University of Michigan law professor who has written about corporate inversions, uses this example: A U.K. company earns $100 in Singapore. It owes taxes to Singapore on that $100, but owes nothing to the United Kingdom on it. A U.S. firm that earns $100 in Singapore owes taxes to Singapore, and also owes U.S. tax on the Singapore profit. The U.S. federal corporate tax rate is 35 percent, so the U.S. company in this case would owe $35 to the United States.
Of course, this tactic has great appeal to many corporations. It does, after all, help them to do what they’re there to do — make money. It doesn’t, however, help them do what they’re ethically obligated to do — be good global citizens.
None of this is new. Inversions are simply a more recent spin on long-standing practices designed to hide assets and skirt taxes. Perhaps nowhere on Earth do we see the seedy underbelly of secret finance more than the little western European nation of Liechtenstein.
Liechtenstein has nearly three times the number of corporations as people. It is arguably what the Cayman Islands wants to be when it grows up. Account holders in Liechtenstein are a veritable who’s who of global malefactors — Russian Mafiosi, al Qaeda, Columbian drug lords, African warlords — all bank there. Saddam Hussein even had an airplane registered there. This is especially noteworthy since Liechtenstein is nothing but hills and has no airport.
Only in the wake of an Edward Snowden-like exposure of account holders by a disgruntled bank employee did the international community seem to notice. Since September 11, the United Nations has pressured Liechtenstein to become more transparent.
Begrudgingly it has, but all this gets to a larger point. As long as there are tax havens and inversion tactics, big corporations and the underworld will have an easy path to do the wrong thing.
In this instance, we’re heartened that Walgreens decided to do the right thing.