Last month, Andrew Ross Sorkin reported in the New York Times that Walgreens was “considering moving the company’s headquarters to Switzerland as part of a merger with Alliance Boots, a European drugstore chain. Why? To lower Walgreens’ tax bill even further.” The news struck a nerve with many of the pharmacy chain’s regular customers, including Triple Pundit contributor Raz Godelnik.
On August 6, CEO Greg Wasson announced that Walgreens would move forward with its merger with Alliance Boots. But, in the face of mounting consumer pressure, Wasson hastened to add that the company would keep its incorporation in the U.S., foregoing an estimated $4 billion in tax savings over five years.
Corporate responsibility advocates were quick to label the story a win from a stakeholder engagement standpoint, and it surely shows what can happen when consumers take action. But it also begs the question: Why Walgreens?
As 3p’s Raz Godelnik pointed out, the pharmacy chain is hardly alone: According to a June report published by Citizens for Tax Justice and the U.S. PIRG, at least 362 companies, making up 72 percent of the Fortune 500, operated subsidiaries in tax haven jurisdictions as of 2013. Among these companies you can find top labels like Apple, Nike and American Express, along with huge money-makers that exist mostly outside of the public eye, such as Pfizer, Air Products and Chemicals and Amgen. So, what was it about the Walgreens case that created such a stir?
One one hand, Walgreens markets itself as the ‘friendly neighborhood pharmacy’ and has spent millions of dollars to establish itself as a household name. The pharmacy giant has also become increasingly vocal about its sustainability journey in recent years. So, it’s no surprise that customers were quick to point fingers at the company for departing from the sustainable brand message it worked so hard to develop.
But before we break out the tar and feathers, it’s worth asking about other players in the game that perhaps aren’t attracting as much attention. Scores of industry-facing companies operate in relative obscurity as far as the public is concerned. Also known as business-to-business or B2B companies, these firms are often free to make whatever choices they see fit — sustainable or not — with little fear of consequence. They don’t need to shell out big bucks for marketing; their customers (other companies and even governments in some cases) already know about them — and have likely been spending millions on their products for decades.
The other side of the coin
Because industry-facing companies have little to no brand recognition on their own, they often sidestep the court of public opinion, while it often seems like well-known consumer-facing companies can never do enough. Even when a large, well-recognized company — Walgreens, McDonald’s, Coca-Cola and the like — announce a sustainability accomplishment, critics are quick to point out other aspects of the firm’s business they deem unsustainable. But, by this argument, isn’t the same the case for businesses whose main source of revenue center around ‘unsustainable’ activities, like oil and gas companies or ballistics manufacturers?
As 3p’s Andrew Burger recently pointed out, many of these intrinsically ‘unsustainable’ industries, such as the oil and gas industry, often have an even broader set of tools at their disposal to avoid paying U.S. taxes. According to a study from Taxpayers for Common Sense, large, U.S.-based oil and gas companies, “paid far less in federal income taxes than the statutory rate of 35 percent” from 2009 through 2013. “Thanks to a variety of special tax provisions, these companies were also able to defer payment of a significant portion of the federal taxes they accrued during this period.”
Twenty of the largest oil and gas companies reported a total $133.3 billion in U.S. pre-tax income over the five-year study period. They were billed $32.1 billion, an effective 24 percent federal tax rate. But special provisions in the U.S. tax code allowed them to defer payment of more than half this bill — meaning these companies actually paid only $15.6 billion, or 11.7 percent. To make matters worse, the total amount of net deferred tax liability for some of these companies “has grown to represent a significant share of their net worth,” Burger wrote earlier this month — as much as 42 percent for some firms.
For most individuals, whose tax rates can reach nearly 40 percent depending on income, stats like this inevitably send blood into a boil. So, how is it that these and other cringe-worthy figures continue to fly under the radar while the likes of Walgreens are named public poster-children for tax avoidance?
From good intentions to real change
This is not to say that folks were wrong in criticizing Walgreens, and I personally feel the chain’s move to stay in the states was the right decision, but the case presents an opportunity to put things in perspective. Rather than singling out specific companies for their tax choices, why not seek to inspire a broader change in the tax code?
For the mainstream audience, taxation isn’t exactly a sexy topic, but, when brought to a personal level, it’s clearly something the public cares about. Sure, it may be unreasonable to expect the average person to know the net earnings and effective tax rates for every company out there. But we can likely all agree that when a Fortune 500 company is paying less than 15 percent in taxes, while middle-class families pay upwards of 25 percent, something is not quite right.
That said, while tax avoidance measures are ethically questionable, they remain unquestionably legal, which, in my humble opinion, is the true issue at hand.
The debate on this topic will surely rage on. But the next time we read a high-profile tax avoidance story that sends our pantaloons into a bunch, it may benefit us to remember all those similar stories that are rarely told. When it comes down to it, pushing to close corporate tax loopholes, whether in the voting booth or in a friendly Sunday dinner debate, is the best way to create permanent change. After all, as responsibility advocates, plugged-in voters and conscious consumers, isn’t permanent change our main objective in the end?
Image credit: Flickr/jeepersmedia
Based in Philadelphia, Mary Mazzoni is a senior editor at TriplePundit. She is also a freelance journalist who frequently writes about sustainability, corporate social responsibility and clean tech. Her work has appeared in the Philadelphia Daily News, the Huffington Post, Sustainable Brands, Earth911 and the Daily Meal. You can follow her on Twitter @mary_mazzoni.