AMERICAN FORUM: A pharmacy’s tax tricks could make you sick

One of America’s best known stores may soon decide that it’s no longer American. If it does, you will pay the price and feel real sick about it.

Walgreens pharmacy is in every way an American company. It was founded in Chicago in 1901 and maintains its headquarters in Illinois. It has 8,200 stores with locations in all 50 states. Walgreens had sales of $72 billion last year — a quarter from U.S. government-sponsored health programs.

Yet Walgreens’ management is considering a plan to renounce its status as an American corporation. The reason for this unpatriotic maneuver? By moving its official corporate address to a foreign country – in this case Switzerland, a tax haven – it may dodge $4 billion in federal taxes over five years, according to equities research firm estimates described in a report by Americans for Tax Fairness. The rest of us will be stuck with the tab.

You won’t have to go to Switzerland to fill a prescription — Walgreens stores will stay right where they are. Walgreens will continue to enjoy all the advantages of operating here – from our transportation and communications systems, to our legal system and our well-educated workforce. It will continue to earn billions from sales to millions of American customers like you.

But Walgreens will be a Swiss company — on paper.

The accounting trick that makes this possible is known as a “tax inversion.” It’s perfectly legal. In an inversion, a large U.S. corporation like Walgreens buys a smaller foreign corporation – in this case, pharmaceutical retailer Alliance Boots of Switzerland. The lawyers make it appear that the foreign corporation is the surviving entity, but the American one is really calling the shots. The foreign firm is usually located in a tax haven saving the U.S. corporation millions or billions of dollars in taxes.

Little wonder that even a pro-business, conservative like Iowa U.S. senator Chuck Grassley has said of this tax loophole: “These expatriations aren’t illegal. But they’re sure immoral.”

The $4 billion taxpayers could lose in a Walgreens inversion could pay for a lot of good things: a year-and-a-half of prescriptions for all veterans getting V.A. care, extending Medicaid to 640,000 Americans, or providing health insurance to 3.5 million children.

Feeling sick yet?

It is particularly infuriating that Walgreens would consider abandoning the United States to dodge taxes because it has been rewarded so handsomely by taxpayers. Federal and state governments are Walgreens’ best customers – a quarter of its sales are from Medicare and Medicaid. Because of another perverse tax loophole, we have spent $11 million subsidizing Walgreens executive bonuses over the past five years. The state of Illinois has given Walgreens $46 million in tax incentives. With a Swiss address, Walgreens may well be able to cut its state income taxes (due not only Illinois, but all states), as well.

Inversion is just one way American corporations systematically avoid paying their fair share of taxes. The corporate tax code is riddled with special breaks that encourage big corporations to hide profits and ship jobs offshore. Corporations dodge $90 billion a year in federal taxes by shifting profits to subsidiaries—often no more than a post office box—in tax havens like Bermuda and the Cayman Islands, a recent investigative report found. As a result, dozens of American corporations—including such familiar names as General Electric, Priceline.com and Boeing—paid zero federal income taxes over the past five years, according to another watchdog report.

When Walgreens and other huge, profitable corporations dodge their fair share of taxes through sleazy accounting tricks like inversion, the rest of us either pay more in taxes, get less in services, or slide further into collective debt.

Walgreens and other U.S. corporations should keep their addresses right where their business is, here in America. And if a sense of patriotism and morality aren’t enough to stop the corporations’ inversion game, Congress should stop it for them. This would be a good first step toward closing all corporate tax loopholes. That’s the right prescription for a fairer economy that works for everyone, not just tax-dodging corporations.

Clemente is executive director of Americans for Tax Fairness.