Walgreens Considering Move to Switzerland

April 14, 2014

The largest drugstore chain in the U.S. is thinking of moving to Switzerland. That’s how bad our corporate tax is. The Financial Times has the story:

Walgreens has come under pressure from an influential group of its shareholders, who want the US pharmacy chain to consider relocating to Europe, in what would be one of the largest tax inversions ever attempted.

At a private meeting in Paris on Friday, investors owning close to 5 per cent of Walgreens’ shares lobbied the company’s management to use its $16bn takeover of Swiss-based Alliance Boots to re-domicile its tax base.

The move, known as an inversion, would dramatically reduce Walgreens’ taxable income in the US, which has among the highest corporate tax rates in the world.

The investor group, which included Goldman Sachs Investment Partners and hedge funds Jana Partners, Corvex and Och-Ziff, requested the meeting after becoming frustrated by Walgreens’ refusal to consider relocating, according to people familiar with the matter.

In a note last month, analysts at UBS said Walgreens’ tax rate was expected to be 37.5 per cent compared with 20 per cent for Boots, and that an inversion could increase earnings per share by 75 per cent. They added, however, that “Walgreens’ management seems more hesitant to pull the trigger near-term due to perceived political risks.”

This would be the latest in a long line of corporate exits from the U.S., including just in the last year: Jim Beam moving to Japan, Applied Materials moving to the Netherlands, and Actavis, Forest Labs, and Chiquita Banana moving to Ireland. Lately there have been a number of mid-size pharmaceutical companies leaving. Before that it was the big beer brewers, Anheuser-Busch and Miller. Before that it was oil and gas services.

People wonder why U.S. corporate tax revenue is declining, and why corporations are slow to invest and hire in the U.S. It’s because the corporate tax is so high and complex that it is forcing businesses to leave. There are now fewer U.S. corporations than at any time since the 1970s. Not only is the U.S. statutory corporate tax rate the highest in the developed world, so is the effective corporate tax rate, according to most measures. So called “revenue neutral” corporate tax reform might improve some of these margins but ultimately it requires a corporate tax cut, and a big one, to return to the competitive average.

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