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Walgreen Seeks Lower Tax Rate Abroad

July 10, 2014


Walgreen Co’s Chief Executive Greg Wasson said on Tuesday that the company is exploring the idea of moving outside the U.S. as it considers buying the remaining shares it doesn’t already own in European pharmacy Alliance Boots GmbH.

The company has been under increased pressure from shareholders to use a merger with Alliance Boots to cut its tax bill through a process known as inversion. Mr. Wasson said the company is attempting to structure its tax liabilities as part of its discussion over whether the buy the remaining 55% of Alliance Boots.

“We’re looking at all and everything,” Mr. Wasson said in response to a question about inversions from an analyst on a conference call. He said the company is looking at the tax structure and “what the structure could do as far as our effective tax rate.”

While the deal’s timing is one of the issues at the hand, investors remain focused on whether Walgreen will be able to lower its tax bill by relocating to Switzerland, where Alliance Boots is based.

Inversions have become more and more common as many American companies look to lower their tax rate and keep cash earned overseas away from U.S. tax authorities.

Mr. Wasson made it clear as recently as March saying an inversion was not an option. “Just to reiterate, as I said on the last call, we have no plans to do an inversion,” he said on a March 25 earnings call. However, other executives suggested the move was among the options on the table.

Pressure for an inversion could continue to increase after the company reported weaker-than-expected earnings, as its pharmacy business battled higher prices for generics and lower reimbursement rates. Walgreen’s 2016 financial guidance had to be scrapped in light of Alliance Boots failing to generate profit as fast as expected and costs and spending cuts due to the combination of operations continue to rise.

The company is expected to unveil new financial targets for the combined company in late July or early August.

Source: Prior, Anna, “Walgreen Considers Moving Headquarters Abroad to Lower Taxes,” The Wall Street Journal, June 24th, 2014

Offshore Accounts/International Tax Disputes