Walgreens decides to keep U.S. tax residency
Wednesday, August 06, 2014
Walgreens, the Deerfield, Illinois-based drugstore chain that's been around for more than a century, is buying the remaining 55 percent of the British pharmacy Alliance Boots.
Walgreens had purchased 45 percent of the European pharmacy/retailer in 2012.
But unlike many other U.S. companies who've been scooping up overseas operations, Walgreens will not make Great Britain it's official headquarters.
The company announced today that Walgreens Boots Alliance, the company that will exist when cash-and-stock deal is finalized sometime next year, will be based in the Chicago area.
No corporate inversion planned: Many business, finance and tax watchers had expected Walgreens to follow its $15.26 billion purchase of the British drugstore with a corporate inversion.
A corporate inversion is a tax domicile maneuver where a United States company buys a foreign subsidiary and then declares that its U.S. facilities are owned by the subsidiary. The result is lower or no taxes to Uncle Sam.
However, the tax situation apparently didn't carry enough weight for Walgreens.
"We took into account all factors, including that we 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," said Walgreens CEO Greg Wasson. "As a result, the company concluded it was not in the best long-term interest of our shareholders to attempt to re-domicile outside the U.S."
Bucking the business trend: Congressional Research Service data shows that in the past decade there have been 47 U.S. companies that have done inversions.
Graphic courtesy House Ways and Means Democrats. Click image for a larger view.
The move is totally legal. And for many businesses and their shareholders, a corporate inversion is a wise paper-only bottom line move.
In fact, Walgreens decision not to take advantage of the lower United Kingdom corporate taxes resulted in a stock hit. Shares of the nation's largest drugstore chain dropped to $61.35, down more than 11 percent in mid-morning trading. That was in addition to a stock dive of more than 4 percent Tuesday, Aug. 5, when word leaked that Walgreens would stay headquartered in the U.S.
Legal, but bad optics: Finances aside, corporate inversions strike a lot of folks as not quite right.
Americans have no monopoly on patriotic enthusiasm, but the "U.S.A., U.S.A., U.S.A" chant is our de facto motto.
Plus it's an election year. That means politicians have latched onto the corporate inversion issue as they troll for every possible vote.
The president has characterized corporate inversions as "gaming the system." Others have called the move flat-out unpatriotic, although the Internal Revenue Service itself tells taxpayers they should only pay the tax amount legally due.
As long as companies can follow the Internal Revenue Code and re-locate their headquarters via inversions, they are following another cherished U.S. dictate: maximize capitalism's spoils.
Still, there have been legislative efforts to close the corporate domicile loophole. So far they have stalled.
So the Treasury Department is investigating how it could unilaterally block U.S. companies from shifting their headquarters abroad primarily for tax purposes.
Treasury said in a statement issued Aug. 5 that it is "reviewing a broad range of authorities for possible administrative actions that could limit the ability of companies to engage in inversions, as well as approaches that could meaningfully reduce the tax benefits after inversions take place."
Beyond taxes: The change would make inversion opponents happy, but Comedy Central would be sad to lose such a mockable topic.
At least we have the first observations on corporate inversions from the hosts of The Daily Show and The Colbert Report.
First, Jon Stewart:
And now Stephen Colbert:
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