Papale on Walgreens

Wow summer feels almost over.  My son Matt starts football practice next week.  Usually by this time I am ready for the cooler and drier fall.  This year however I am still enjoying summer.  Maybe the extreme cold of last winter is still with me or that the front end of this summer was a bit cooler than normal.  Whatever the reason I am not ready to put the shorts and flip flops away just yet.

Sometimes it just doesn’t pay to play by the rules.  Yesterday Walgreens stock got slammed for about 15% when they decided to forgo a plan to move corporate headquarters oversees and remain in the United States.  The move overseas, to Switzerland in this case, was to save on corporate taxes.

By not moving, Walgreens will continue to pay at the US corporate tax rate, about 35%, although no one really pays that.  This strategy used by Walgreens and several other corporations that has gotten much press of late is known as inversion.  While moving oversees for tax savings can certainly present tremendous PR problems it is perfectly legal and within the laws of US tax code.  Corporations like Walgreens and others are in business to maximize long term value.  While the metrics that make up value may differ from company to company, some portion must be bottom line profits.  Without profits companies cease to exist.

In the case of Walgreens, they made a decision that moving oversees might be a way to add value since taxes in Switzerland are lower than US taxes.  From a business perspective, this would be an analysis not unlike picking the most efficient supplier or partner.  So Walgreens finds a legal albeit unpopular way to lower its taxes and increase bottom line.  In response our comrades in the government strong-arm Walgreens with a basically unlimited and hellish Treasury investigation which would likely go on for years and cost untold millions of dollars.  The fact inversion is perfectly legal is irrelevant.  It may be unpopular and unpatriotic but it is legal.  Its seems to me if  a law on the books is not meant to be followed maybe it should be changed.  But it’s an election year and that would take too long.

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