Walgreen retreats from plan to move tax domicile abroad

WASHINGTON/NEW YORK Tue Aug 5, 2014 7:23pm EDT

The sign of a Walgreens store is pictured in Pasadena, California December 20, 2013. REUTERS/Mario Anzuoni

The sign of a Walgreens store is pictured in Pasadena, California December 20, 2013.

Credit: Reuters/Mario Anzuoni

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WASHINGTON/NEW YORK (Reuters) - U.S. retailer Walgreen Co (WAG.N) on Tuesday backed away from a plan to reincorporate abroad to cut its U.S. tax bill, while the Obama administration said it was considering steps to curb such corporate tax domicile-shifting deals.

Walgreen, the operator of the largest U.S. pharmacy chain, will buy the 55 percent it does not already own of European rival Alliance Boots ABN.UL, but the U.S. company will not use the deal to move its tax domicile overseas, said a person familiar with the matter.

Walgreen issued a statement late on Tuesday saying it will announce "several updates" on its Alliance Boots at 6 a.m. Eastern time (1000 GMT) on Wednesday, followed by a conference call with management at 8 a.m. ET. The company said the updates will cover "the transaction's timing and structure."

Walgreen's retreat will be the third major possible "inversion" deal involving a major company to collapse in recent months amid controversy, underscoring the complexity and heightened political sensitivity in the United States of these transactions.

Walgreen had been under pressure from investors to do such a deal as part of its buyout of Alliance Boots so that the U.S. retailer's tax domicile could be moved to Switzerland or Britain.

But the company also faced criticism from Democratic politicians, including the senior U.S. senator from its home state.

In an inversion, a U.S. corporation buys or sets up a foreign company and then moves its tax domicile to that foreign company and its home country, while leaving core business operations in the United States. Doing such a deal ends U.S. taxation of the company's foreign profits and makes it easier for the company to take other tax-cutting steps.

Walgreen shares ended regular trading on Tuesday at $69.12, down 4.4 percent.

A spokeswoman for Alliance Boots declined to comment.

TREASURY WEIGHS OPTIONS

Separately, the Obama administration said on Tuesday it was considering administrative actions to discourage inversions, given the failure of Congress to address the issue.

"Treasury is reviewing a broad range of authorities for possible administrative actions that could limit the ability of companies to engage in inversions, as well as approaches that could meaningfully reduce the tax benefits after inversions take place," a Treasury Department spokesperson said in an email.

The spokesperson added that there were limits to what Treasury can do without action by Congress, and that "legislation is the only way to fully address inversions."

Three prominent Democratic senators on Tuesday urged President Barack Obama to use his executive authority to reduce or eliminate tax breaks for companies that invert.

Nine inversion deals have been agreed to this year by U.S. companies ranging from banana distributor Chiquita Brands International Inc (CQB.N) to drugmaker AbbVie Inc (ABBV.N) and more are being considered. The transactions are occurring at a record pace since the first inversion three decades ago.

But two large inversions recently collapsed: one involved U.S. drugmaker Pfizer Inc (PFE.N); and the other, U.S. advertising company Omnicom Group Inc (OMC.N). Both had targeted European rivals for acquisition, with a tax domicile move abroad included in their plans, but the deals unraveled.

SENATORS URGE ACTION

Senator Richard Durbin, the second-ranking Senate Democrat, along with Senators Jack Reed and Elizabeth Warren, said immediate action was needed to stem these transactions, citing concerns about fairness and the eroding U.S. corporate tax base.

Durbin, who is personally close to Obama, is from Illinois and had publicly urged Walgreen not to go through with an inversion. Obama himself formerly was a senator was Illinois.

Treasury Secretary Jack Lew has publicly questioned the patriotism of companies that do inversions. "We are looking at a very long list of possible ways to address the issue,” he said in an interview with The New York Times on Tuesday.

Inversions are still rare but are becoming more common. Of the roughly 50 inversion deals done since 1983, about 40 percent have been completed just since 2009 and more are being finalized, with many others said to be in the planning stages.

Inversion deals are legal, and company executives who arrange them say they are only trying to minimize the amount of taxes the company pays, as investors expect them to do.

UK-based Sky News was first to report that Walgreen had decided not to proceed with its planned reincorporation.

(Additional reporting by Esha Vaish and Ramkumar Iyer in Bangalore; Greg Roumeliotis in New York; David Lawder, Mark Felsenthal and Jason lange in Washington; Editing by Steve Orlofsky)

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