Editor's Plate: CSR Means Paying Taxes

July 21, 2014
Walgreen Co., increasingly a grocery retailer, is considering an offshore home to avoid U.S. corporate taxes.

“We live those values every day, as we try to reflect the vision of Charles R. Walgreen by doing what is fair and beneficial to others.”

Two quick questions up front: 1. Do you have a corporate social responsibility (CSR) report? 2. Are you selling your groceries through a large retail chain that’s considering moving its corporate headquarters offshore just to dodge U.S. taxes?

I’m speaking of Walgreen Co., based here in the suburbs of my hometown Chicago. Walgreen’s in recent years has greatly increased the floor space it devotes to groceries, not just candy and gum, and it also has a burgeoning private label business. But if it moves a nominal head office to Switzerland, I won’t be buying my Maxwell House instant coffee and Splenda there anymore. And that truly is where I buy my coffee and sweetener and many other groceries for various reasons. Sorry, Kraft and McNeil/Tate and Lyle.

I suspect I won’t be alone. Stories in the Chicago media have created a backlash against this hometown favorite, which has been filling our prescriptions since 1901. This could alienate customers across the entire country, now that Walgreen’s has a national footprint (8,678 stores in all 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands and Guam).

The company faces a tough choice, balancing profits against corporate social responsibility. One local news story likened this move to Walgreen’s renouncing its U.S. citizenship.

For background, Walgreen’s is in the process of acquiring the remaining 55 percent of Switzerland-based Alliance Boots, Europe’s largest pharmacy chain (it already owns 45 percent). That logical move comes with an interesting side benefit called a corporate tax inversion. By making itself in effect a subsidiary of a foreign parent, Walgreen’s can move its corporate home to low-tax Switzerland (or elsewhere in Europe). No additional bricks and mortar needed, and the well-paid execs of America’s pharmacy don’t need to buy chalets in the Alps or move there.

The only thing that changes is some paperwork.

This would save the firm millions, maybe hundreds of millions, in taxes … which presumably would be returned to shareholders in improved earnings. Except the biggest shareholders in Walgreen's are institutional investors and its own executives.

Referring back to the corporate social responsibility report: I couldn’t find one on Walgreen’s website, although they have a landing page devoted to five subtopics of that subject. Admirable stuff, like Community, Environmental Sustainability, Diversity, Supplier Diversity and Disability Inclusion. The quote at the top of this column comes from that page. Dodging taxes doesn’t sound compatible with those lofty goals.

I’m in dangerous territory here because I don’t know enough about taxes and international business dealings to make this a knockout punch. This is not a first for corporate America, although I think it is a first for a business that has this much reach into the food and beverage industry. And I always worry that the real culprits are investment firms and financial analysts, who may be unhappy with the share price – which looks pretty stellar to me.

Maybe Walgreen’s mere threat will motivate Congress to undertake a long-overdue examination of the corporate tax codes, closing some of the loopholes and maybe lowering some rates so that American firms can be profitable and competitive on a world scale. But that’s the thing: Nobody can call Walgreen’s noncompetitive. If it were, it wouldn’t be in a position to be buying Europe’s biggest pharmacy chain.

America has been good to Walgreen’s. Walgreen’s should return the favor.

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