Walgreens Case Study

Walgreens has been a U.S. company since Charles R. Walgreen Sr. opened his first drug store in Chicago in 1901. Today, Walgreens has a total of 8,678 stores, in every state and U.S. territories. Last year, however, it proposed to become a Switzerland firm. The CEO of Walgreens planed to merge with Europe-based Alliance Boots to acquire a legal address abroad even though Walgreens earns most of its profits in America. The reason had nothing to do with manufacturing costs or access to foreign markets. Instead, it was to escape U.S. taxes. The move is called tax inversion.
Tax inversion is a largely American term for the process of relocating a corporation’s legal domicile to a lower-tax nation, or corporate1. For example, U.S. drug maker AbbVie
One is self-inversion. A company can simply reincorporate abroad in a country with lower taxes, like Ireland. Another is inversion through merger with or acquisition of a foreign company. The new combined company can incorporate anywhere it choose.
Why do these corporations want to flee the U.S. tax system? What are the benefits of tax inversion? I conclude two main reasons. Fist of all, the U.S. corporate income tax rate is the highest in the developed world. Corporate profits between $100,000 and $335,000 are taxed at a 39 percent rate, while higher profit levels are taxed between 34 and 38 percent4. The more profits in income taxes the corporation pays, the less money is available for shareholders and for investing in future growth. Tax inversion can help a company lower their tax bills by reincorporating its business in a foreign country with lower tax rate.
Secondly, in the United States, tax laws are “comprehensive”. This means that a company incorporated in the U.S. must pay income taxes on profits made anywhere in the world. This is very different from other countries, where only domestic profits are taxed. Therefore, a company can escape U.S. tax on worldwide income when it conducts tax inversion. For instance, after Florida-based Burger King announced acquisition of Tim Hortons and put the headquarters of the combined company
However, neither democrats nor republicans like inversion. Because tax inversion is eroding the U.S. tax base, forcing individual taxpayer, small business, and domestic corporations to make up the difference. Since most resulting companies are not really moving overseas, they can continue to enjoy all of the public services they depend on- good schools, efficient roads, market inspectors, and other public services- while paying no tax and passing their bills to other taxpayers. For example, Walgreen announced it would not move its headquarters to Switzerland after it merged with Alliance Boots. Such a plan might have cost U.S. taxpayers $4 billion over five years, according to a report by the nonprofit group Americans For Tax Fairness and the labor group Change To