I consider myself a regular customer at Walgreens – I shop there at least once or twice a week. For some reason I thought I knew the company quite well, at least when it comes to sustainability issues, but this week I’ve learned a new fact that I wasn’t aware of:
Walgreens is considering a move abroad to lower its tax rate.
As Andrew Ross Sorkin reported in the New York Times, Walgreens “is now considering moving the company’s headquarters to Switzerland as part of a merger with Alliance Boots, a European drugstore chain. Why? To lower Walgreen’s tax bill even further.”
According to Americans for Tax Fairness, Sorkin adds, “a move by Walgreen to Switzerland would most likely cost United States taxpayers about $4 billion over five years.”
So what does it mean exactly, and what should Walgreens customers like me do about it? Here are five things to think about:
1. Walgreens is not alone
First, let’s be clear – from a legal standpoint there’s nothing wrong with this move. As Americans for Tax Fairness explains in a report published last month, Walgreens is basically just taking advantage of a tax loophole allowing American companies to reincorporate offshore, typically in a tax haven, when just 20 percent of their stock is owned outside of the U.S.
Second, according to a report published last month by Citizens for Tax Justice and the U.S. PIRG “many large U.S.-based multinational corporations avoid paying U.S. taxes by using accounting tricks to make profits made in America appear to be generated in offshore tax havens—countries with minimal or no taxes.” One of the report’s findings is that at least 362 companies, making up 72 percent of the Fortune 500, operate subsidiaries in tax haven jurisdictions as of 2013. Among these companies you can find Apple, Nike, American Express, Bank of America, PepsiCo and Pfizer.
2. Sustainability, innovation and tax avoidance
Walgreens prides itself on being committed to both innovation and sustainability. In the last shareholder meeting in January 2013, CEO Greg Wasson told company shareholders about the many ways the company is “push[ing] the needle on innovation, including expansion of “the “community pharmacy” role of its pharmacists and nurse practitioners in filling the gap in primary care that has been growing in the US for many years and adding more fresh foods to its selection of groceries.”
Another example Wasson gave for the company’s innovativeness was the company’s first “zero-energy” store in Evanston, Ill., “which generates more than enough electricity to power all of its own needs.” The store, the Christian Science Monitor reported, packs in more than 800 solar panels, two wind turbines and geothermal technology, generating 28 percent more electricity than the store will need.
This is all great and goes hand-in-hand with what Wasson has to say about social responsibility on Walgreens’ website:
“Walgreens is much more than a drugstore chain. We are part of the communities we serve and we share their values and objectives: good health, a close community spirit and a healthy environment. We are absolutely committed to supporting individuals, organizations and neighborhoods as they work to achieve these goals.”
But do tax avoidance strategies go hand-in-hand with innovation and sustainability? I doubt that. It might be considered innovative, but I don’t think you’ll find one community in the U.S. where Walgreens operates that will support this move or think it demonstrates Walgreens’ commitment to the communities it serves.
3. Why a legal effort to lower tax rates is unsustainable
It’s not that all of the money Walgreens will save by paying lower tax rates will go to its executives or stay abroad. Some of it will probably go back to customers through lower prices and to its shareholders through greater return on their investments. Still, my guess is that for most of Walgreens’ stakeholders in the U.S. the impact of this move would be negative.
As Joseph Stieglitz explains in a paper the Roosevelt Institute published in May, “Tax arbitrage has become a major and highly proﬁtable activity for ﬁrms – an activity with no social returns but high social costs.” These social costs include vast amounts of lost revenue for the U.S. treasury and the exporting of much-needed jobs to other countries.
All in all, I believe that, as a 2006 SustainAbility report suggested, companies should treat the payment of tax as a key part of their social contract. After all, why should there be any difference between the way companies address local water resources, local social issues or their share in the tax base of communities in which they operate? These are all parts of the same puzzle.
4. Does it mean that Walgreens is not sustainable as it claims to be?
There is no simple answer here, as the company is taking both sustainable and unsustainable steps. The way to decide which one matters more should be by looking at the company’s approach to what I call ‘practices you might have a hard time selling to your shareholders.’
Now, it’s not that difficult to explain to your shareholders why “zero-energy” stores or selling more fresh food in the stores make sense. It is, however, not easy to “sell” to shareholders the idea of tax fairness. Therefore, I think this is the right place to test Walgreens’ sustainability, and unfortunately at the moment it fails in it.
5. What should Walgreens’ customers do?
The adoption of tax fairness approach by companies is usually the result of regulation, leadership or pressure of stakeholders. Since I doubt that we’ll see anytime soon an effort in the U.S. Congress to close tax loopholes (like the one we saw now in the EU) or any leadership at Walgreens similar we saw at CVS, we’re only left with the third option.
If customers will show Walgreens they’re unhappy with its move, Walgreens may rethink if this move is worthwhile. Otherwise, nothing will change.
So, Walgreens customers, this is up to you now: Would you do something about it? Feel free to share your thoughts!
Image credit: Phillip, Flickr Creative Commons
Raz Godelnik is an Assistant Professor of Strategic Design and Management at Parsons The New School of Design. You can follow Raz on Twitter.