July 22--Illinois Sen. Dick Durbin on Tuesday urged Walgreen Co. to reconsider a possible move of its headquarters to Switzerland to lower its U.S. tax bill.
In a letter to Walgreen Chief Executive Gregory Wasson, Durbin said the company could face a backlash from its customers.
"I believe you will find that your customers are deeply patriotic and will not support Walgreen's decision to turn its back on the United States," Durbin wrote. "Nearly all of your $2.5 billion in profits earned last year were from sales to U.S. taxpaying customers."
The senator ended his letter with a twist on Walgreen's advertising campaign: "Is 'the corner of happy and healthy' somewhere in the Swiss Alps?"
The letter increases political pressure on the company as it contemplates leaving Deerfield, as part of its plan to buy the rest of Alliance Boots, which operates a drugstore chain in the United Kingdom and is based in Switzerland. The controversial move, known as an inversion, could save the company millions of dollars a year in income taxes because Switzerland's tax rates are lower than U.S. rates.
Walgreen paid $1.4 billion in state and federal income taxes in its last fiscal year.
In a statement, a Walgreen spokesman said, "We've had a long relationship with Sen. Durbin and appreciate his view on this subject. As we've said before, we are in the process of evaluating all aspects related to the second step of our strategic partnership with Alliance Boots, and we will do what is in the best long-term interests of our customers, employees and shareholders."
Durbin has been one of the more outspoken critics of inversions in recent weeks as a wave of pharmaceutical companies have moved to purchase European rivals, in part to redomicile in Europe and save millions of dollars a year in taxes. The senator sent a letter to another Illinois company, North Chicago-based AbbVie last week, opposing its acquisition of Ireland-based Shire.
Walgreen would be one of the first American retailers to consider an inversion. The company has been based in Illinois for its entire 113-history and received state tax incentives a few years ago to expand its Deerfield headquarters.
If the company were to move its tax home to Switzerland, there likely would not be substantive changes to its U.S. operations. Walgreen had more than 8,500 locations in the U.S., Guam and Puerto Rico, as of Aug. 31, 2013. Besides reducing the taxes its pays on its U.S. profits, an inversion also would ensure that its foreign profits generated after completing the merger with Alliance Boots would escape a U.S. tax hit.
"I recognize that potential windfall in profit is an attractive option for shareholders," Durbin's letter said. " On the other hand, much of Walgreens financial success was built on programs and infrastructure provided by the U.S. government and paid for by U.S. taxpayers."
Durbin added: "Further, it is not clear to me how you can in good conscience build a profitable company using these public assets and then organize your financial holdings specifically to avoid paying taxes on those profits.
Walgreen expects to announce in the coming weeks details about how it would structure a deal with Alliance Boots and where the combined company would be based.
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Original headline: Sen. Durbin derides Walgreen for possible tax-driven overseas move
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