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Guest Column: Walgreens: Europe’s neighborhood drugstore?

June 11, 2014

By Dev Gowda
Advocate, Illinois PIRG (Public Interest Research Group)
Nell Geiser
Associate Director, Change to Win Retail Initiatives
and Frank Clemente
Executive Director, Americans for Tax Fairness

Recent reports indicate that Walgreens, our neighborhood drugstore that’s been proudly based in Illinois for 113 years, may be changing its address to Europe to avoid paying its fair share of taxes.

Walgreens’ impending acquisition of the Swiss pharmaceutical company Alliance Boots opens a legal loophole that would allow Walgreens to become a “foreign” company for tax purposes. Known as a “tax inversion,” the maneuver has no real business purpose other than to avoid taxes.

Walgreens’ potential offshoring would likely be only on paper, meaning neither the physical headquarters nor any other operations would move overseas, but the negative consequences would be real for our communities.

This move could potentially cost more than $580 million in taxes annually starting in 2016, rising to about $1 billion a year in 2020, based on estimates from three prominent equity research firms. That adds up to more than $4 billion in lost taxes over five years, according to a new report by Americans for Tax Fairness and Change to Win Retail Initiatives.

To put this sum in context, $4 billion would be enough to pay for 1-1/2 years of prescriptions for the entire veterans’ population served by the V.A. or for 3.5 million children to have health care under the Children’s Health Insurance Program.

Avoiding taxes didn’t start with Walgreens. According to the report “Closing the Billion Dollar Loophole” by Illinois PIRG, every year, corporations avoid paying more than $100 billion in state and federal income taxes by using accounting tricks to make U.S. profits appear on the books in offshore tax havens. Last year, in the midst of a budget crisis, Illinois alone lost $1.5 billion from the abuse of offshore tax loopholes.

Inversion allows companies to maximize the benefits of exploiting offshore tax loopholes. An American company must pay U.S. tax on profits it claims were made offshore if it wants to use the money to pay dividends to shareholders or make certain U.S. investments. However, once a corporation is characterized as “foreign,” the profits it books offshore are exempt from U.S. tax, increasing the reward for exploiting offshore loopholes.

In 2004, Congress passed bipartisan legislation to crack down on tax inversions, but companies found a way around the law’s requirements.

Tax dodging is not a victimless offense. When corporations skirt taxes, the public has to make up the difference. That means higher taxes for average taxpayers, cuts to public services, or higher budget deficits. Small businesses that lack armies of tax lawyers are also left at a competitive disadvantage. Businesses should compete based on the quality of their products, not on the cleverness of their tax attorneys.

Walgreens’ deliberation over whether to offshore its official address is just the latest evidence that it’s time for Congress to close offshore tax loopholes for good. Passing the Stop Tax Haven Abuse Act would be a great place for lawmakers to start.

From the June 11-17, 2014, issue

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