Largest American Drugstore Chain Decides Not To Dodge Taxes
Walgreen Co announced on Wednesday that it won’t go through with its acquisition of Switzerland-based Alliance Boots, a move called an “inversion” that would have shifted company headquarters overseas to avoid paying U.S. taxes.
While it will still go through with buying all of Alliance Boots’s shares, Walgreen will still be based in the Chicago area.
In a statement about the decision, the company said that it was “mindful of the ongoing public reaction to a potential inversion and Walgreens unique role as an iconic American consumer retail company with a major portion of its revenues derived from government-funded reimbursement programs.” CEO Greg Wasson also said that after an “extensive and rigorous analysis,” the company “could not arrive at a structure that provided the company and our board with the requisite level of confidence that a transaction of this significance would need to withstand extensive IRS review and scrutiny,” saying that “it was not in the best long-term interest of our shareholders.”
The company’s decision not to move its headquarters overseas via an acquisition is the third major potential deal to collapse in recent months.
Companies have come under increased scrutiny for this move, with Congressional hearings, statements from President Obama, and lawmakers urging action to stem the tide. Rep. Sander Levin (D-MI) introduced a bill to close a loophole that makes inversions legal. Sens. Dick Durbin (D-IL), Jack Reed (D-RI), and Elizabeth Warren (D-MA) sent a letter to President Obama on Tuesday urging him to take action on the issue. And on the same day, the Treasury Department announced that it was looking at “a broad range of authorities” for ways to limit companies’ ability to do inversion deals as well as ways to “meaningfully reduce the tax benefits” of such moves.
Yet plenty of deals look ready to move ahead, such as Pfizer’s takeover of AstraZeneca, which would save the company $1 billion in taxes each year with its headquarters abroad, and AbbVie, maker of Adderall and other drugs, acquiring Shire. The rate of inversion deals has accelerated recently, with more than half of the 76 companies that have done these deals in the last three decades completing them since the recession. About a dozen companies have made the move this year, and dozens could still come. These deals are costing the country between $30 billion and $90 billion a year in tax revenue.
While these companies aren’t supposed to get federal contracts, the ban is so easy to get around that more than a dozen of those who have moved their headquarters offshore get more than $1 billion a year in government work.
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CREDIT: AP/LM Otero
American fast food chain Burger King is in talks to buy Tim Hortons, a doughnut and coffee chain based in Canada, the New York Times reported Monday.
A deal, which could be reached as soon as this week, would mean the iconically American company would be headquartered in Canada, and benefit from the country’s lower corporate tax rate, 15 percent, compared to the on-paper 35 percent rate in the U.S.
The tax benefits may not be the biggest driver of the deal. Burger King has been seeking more coffee offerings to keep up with competitors, keeping headquarters in Canada may placate that country’s regulators, and the combined entity would be the third-largest quick-service restaurant in the world. But it will reduce Burger King’s tax rate from the 27 percent it currently pays.
So-called “inversion” deals that moved a company headquarters from the U.S. and reduce tax rates are common, even when they are to somewhere as close Canada. In 2010, Valeant Pharmaceuticals moved from California north by combining with Biolvail Corp., lowering the tax rate it paid to less than 5 percent.
Yet despite the nominally high 35 percent American corporate tax rate, most multinational companies based here don’t pay that rate — the average is 12.6 percent thanks to a variety of ways they can lower their bills. A recent paper argued that the ability to lower their taxes actually makes American companies more competitive than others around the world. Meanwhile, companies that have done inversion deals haven’t necessarily seen a payoff in better performance. There’s no evidence suggesting that higher corporate tax rates lower economic growth and instead companies that pay the highest rates actually create the most jobs.
None of this has deterred the uptick in inversion deals over recent years, however. About a dozen have occurred this year and dozens are still in the works. The rate has sped up, with more than half of the 76 deals over the last three decades competed since the recession began. Drug company Pfizer is looking to acquire British AstraZeneca, and the maker of Adderall, AbbVie, is seeking to buy Irish Shire. Chiquita banana is also looking to merge with Irish Fyffes.
But public pressure has unraveled at least one deal: Walgreens, the largest American drug store, decided not to go through with an inversion through buying Swiss Alliance Boots. It was the third major deal to collapse in recent months.
Pressure could ramp up. The White House has been promising to take action to make these deals more difficult and less attractive, and the Treasury Department is looking at its options on that front. A bill was introduced in the house to close a loophole making inversions legal and other lawmakers have urged action.