According to Americans for Tax Fairness, a move by Walgreen to Switzerland would most likely cost United States taxpayers about $4 billion over five years. Illinois taxpayers would also be hurt. The company's tax rate would be cut to 20 percent as part of Alliance Boots from about 31 percent now. Interestingly, Alliance Boots, which was originally based in Britain, moved to Switzerland in 2008 in large part to lower its tax rate.
Mr. Wasson isn't hiding the fact the company is considering the move for tax reasons. On a call with investors and analysts last week, he plainly said that company leaders were examining "what the structure could do as far as our effective tax rate."
A spokesman for Walgreen did not respond directly to the contentions of Americans for Tax Fairness, but he did say,"Our management team and board are making significant progress evaluating the proposed transaction determining the timing and structure, the combined management team, additional synergy and cost reduction initiatives and potential changes to our future capital structure." He added: "We're looking at everything, and it's all interdependent." A decision is likely to come this summer.
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While it is not illegal for a United States company to seek to lower its tax rate by merging with a foreign company, such deals have large policy implications. If Walgreen were to move, would CVS Caremark be far behind? What about other companies? CVS's tax rate was about 34 percent last year, which would clearly make it less competitive than a reincorporated Walgreen, both in terms of pricing drugs and attracting investors.
A bevy of large investors is pressing Walgreen to make the move abroad. Jana Partners, Och-Ziff Capital Management, Goldman Sachs and Corvex held a meeting in Paris with Walgreen in hope of persuading it to move. Goldman has tried to distance itself from the debate by publicly saying that it did not take a position at the meeting.
All of these inversions — driven by lower rates and, in some cases, cash that United States companies have overseas that they don't want to bring home at current rates — highlight the need for corporate tax overhauls. Both Democrats and Republicans say they support lower corporate tax rates and the elimination of loopholes that would make our system more competitive and tax inversions less attractive. However, when it comes to the details, a huge gulf remains between the parties.