Walgreen choose “inversion”
Walgreen Co. considers moving its headquarters to other countries in order to reduce the tax liability on income earned abroad. Now many companies start taking this strategy to save tax liability. According to the Organization for Economic Cooperation and Development (OECD), U.S. has the highest corporate income tax rate of 39% in the world. Likewise, U.S. Corporation face the highest average corporate rate in the world at 35%. Other member states’ corporation face much lower rates than United States. In this situation, many U.S. Corporation choose taking the strategy of a “corporate inversion”. Corporate inversion is a way to cut tax. Corporation buy a foreign company, but they still operate in United States. Then they reincorporate in the new country. When corporation moves its headquarters to another country, it still has tax liability on income earned in the U.S., but it can avoid the tax on foreign income.
In such a competitive environment, the relatively high corporate tax rate results U.S. corporations to utilize foreign entities to avoid high taxation. In this article, Walgreen becomes a foreign company and renounces its U.S. citizenship, because other countries has a lower tax rate. The main objective of corporation is to maximize profits for their shareholders and saving more money in taxes. Now, many big U.S. Corporation have more profit in faster-growing foreign market. However, the higher corporate tax rate causes that corporation can’t make more money. So they should seek tax advantages under the condition of without breaking the law. If corporation change their tax base to another country, it can save a large part of the money to make more profit for shareholders. This action doesn’t break law, it just avoids Federal income tax. Corporation just utilizes the tax law’s loopholes. In fact, the corporate tax system still has some problems. Congress should recognize this problems, and make some change in a flawed tax system. It will be competitive with other developed countries.
Although corporation can use this strategy to reduce the tax cost, it doesn’t consider the national interest. In Walgreens’ case, it acquires about 46 billion tax credit over 10 years and supports by training money and additional tax incentives. Nevertheless, Walgreen still want to leave to make more money. Actually, they may lose more customers and more money. Because they pay taxes in order to bring more benefits to citizens. The citizens are the main purchasing power. Walgreen gets nearly a half of its revenue from them. In this way, many Americans can’t take advantage of the tax gap utilized by corporation, and they will feel it unfair and unpatriotic. They won’t shop at there. On the other hand, even if it becomes a foreign company, it also should face the other countries’ tax credits and rules. Actually, corporation paid taxes is far lower after all deductions, tax credits, and other benefits. If corporation become a foreign company, it should no longer have any benefit from U.S. government. Even though it still operates on location of American, it has already became a foreign company. In another country, it also faces a strong competition. Also, if corporation buy a foreign company, it will not be familiar with its structure and operation. It may be difficulty put two corporation together.
If Walgreen Co. moves to another country, it will bring a strong pressure to taxpayers. According to a report by the nonprofit group Americans for Tax Fairness, Walgreen inversion can increase American taxpayers cost about $4 billion. The