Dozens of large companies are contemplating the increasingly popular tax-skirting tactic known as “inversion” because U.S. corporate tax rates are much higher than in many other western countries, including Great Britain, which is in the process of slashing its corporate rates.
Pfizer garnered increased attention earlier this year as part of its since-abandoned bid to purchase UK-based pharma giant, AstraZeneca. But despite the setbacks and bad publicity, more companies keep exploring the issue. Troy, Mich.-based Delphi Automotive, for instance, once a part of General Motors, is now fighting as an independent company against U.S. government efforts to tax Delphi as a domestic corporation despite its previously established tax domicile in the UK.
In fact, a new report shows that 76 stateside companies shifted their headquarters out of the U.S. since 1983 to avoid corporate taxes, with a sharp increase recently in such deals. The policy research arm of the U.S. Congress said that 47 such deals had been transacted in the past decade alone and, of course, more are in the works.
The latter includes Walgreen. CEO Greg Wasson is considering moving the company’s headquarters from Chicago to Switzerland as part of a merger with Alliance Boots, a European drug-store chain. Such an outcome would save Walgreens an estimated $4 billion in federal taxes over five years.
But it was less than two years ago when Wasson sought a series of tax breaks from Illinois, notching $46 million in corporate income-tax credits over 10 years in exchange for a pledge to create 500 jobs and invest in upgrading its offices; Illinois also threw in $625,000 in training money and $875,000 in other tax incentives.
“We are proud of our Illinois heritage,” Wasson told The New York Times. “Just as our stores and pharmacies are health and daily-living anchors for the communities we serve, we as a company are now re-committed to serving as an economic anchor for northeastern Illinois.”
Not surprisingly, some groups are affronted, including a union-financed advocacy group called Change to Win Retail Initiatives. The executive director of Americans for Tax Fairness, a grass-roots group, also objected.
It would be “unfair and deeply unpatriotic if [Walgreens] moves offshore while continuing to make its money here, leaving the rest of us to pick up the tab for its tax avoidance,” executive director Frank Clemente told The New York Times.
U.S. Sen. Carl Levin (D-Mich.) is already attempting legislatively to curtail inversion. Whether his outrage is joined by other politicians and rank-and-file consumers and employees remains to be seen. In the meantime, CEOs should consider the needs of all constituents before making such a decision.