Corporate inversion: Impact on United States' economy
What is a corporate inversion?
Corporate inversion is a tax avoiding strategy in which a multinational company in the United States renounces its citizenship and re-incorporate itself in a tax haven country to avoid paying taxes on its foreign income.A multinational company has operations in more than one countries; however, it declares one of them as its home where the parent company resides. An inversion deal changes the parent company with no changes in operational behavior. Corporate inversion has never been the talking point of mainstream common people because of the complex nature of corporate financial accounting and taxation rules. But the recent wave of inversions made
…show more content…
Walgreens, which had $72 billion in U.S. sales last year, would likely avoid $4 billion in U.S income taxes over five years if it inverts with a Swiss firm. Pfizer, which tried to do an inversion with AstraZeneca in the U.K., would dodge $1 billion a year in taxes here. Also, U.S. companies with billions of untaxed profits offshore can escape paying taxes on those profits in America if they invert. . 8
New Customer
Inversion allows corporations to reach new customers. It also facilitates better global cash flow. Sometimes the inversion to neutral countries provides a level playing merger for the corporations. For example, if the US and French company merge, the French might perceive the US is dominating the show. Reincorporation in a country like Netherlands, Ireland, UK or Luxembourg, therefore, facilitates a better collaboration for multinational corporations via merger.
Flexible governance
The global landscape for business has become increasingly complex. Flexible governance is needed to operate in many markets. US impose a rigid governance model whereas many EU jurisdictions like Netherland offers corporate law that allows flexible governance models. As a result, businesses have the flexibility of setting it up. One such example is flexibility to operate management and supervisory board as a whole or
…show more content…
Wasson, the chief executive of Walgreen sought a series of tax breaks from Walgreen's home state, Illinois.The state awarded $46 million in corporate income tax credits over ten years to Walgreen. The state asked for a commitment to create 500 jobs . In addition, Illinois also provided $625,000 in training money and $875,000 in other tax incentives. After all those incentive, Walgreen is now considering moving the company's headquarters to Switzerland as part of a merger with Alliance Boots, a European drugstore chain10.
This proposed inversion is an affront to United States taxpayers. A quarter of the revenue of Walgreen comes directly from the government; it received $16.7 billion out of its total $72 billion from Medicare and Medicaid last year.
According to Americans for Tax Fairness, a inversion move by Walgreen to Switzerland would cost United States taxpayers about $4 billion over a period of five years. Illinois taxpayers in particular would be hurt most. The company's tax rate would be cut from 31 percent at present to 20 percent as part of the merger.
It is not illegal for the United States company to seek to lower its tax rate by merging with a foreign company. However, such deals have large consequence. If Walgreen were to move, CVS would most likely to be next. CVS's tax rate was about 34 percent last year. The inversion would make CVS less competitive than a reincorporated
Earlier on this paper, the industry five forces analysis has been discussed generally. In this part, the paper analyzes Walgreens ' actions based on industry five forces model and suggests the next actions that Walgreens would rather do to maintain and improve its power in each five areas. This section will go into each force of five forces model in the order of priority, including bargaining power of buyers, the threat of substitutes, the degree of rivalry within the industry, the threat of new entrants, and bargaining power of suppliers.
Walgreens was founded in 1901 measuring 50 feet by 20 feet by Charles R. Walgreen, Sr.. Mr. Walgreen was born near Galesburg, Illinois and his family later relocated to Dixon, Illinois at town about 60 miles north of his birthplace. Mr. Walgreens’ father was a farmer who turned into a businessperson and saw a great potential of the Rock River Valley (Walgreen, n.d., p.1). At age 16, Charles Walgreen had his first experience working in a drug store. He didn’t always have pleasurable experiences but it was a job with pay. He had an accident at a shoe factory that cut off his left middle finger from the top joint. This injury also stops him from playing any sports at school. After a year and a half with the drug store, Mr. Walgreen left to pursue something bigger in the big city-Chicago.
There are 940 stores just in British Columbia or 10.6% of the Canadian market. The most competitive are Shoppers Drug Market and London Drugs. Shoppers Drug Market makes up 31.8% of the whole Canadian market, so we figured we should look into a smaller city in order to eliminate a high number of competition. We selected Fort St. John, BC because according to the city website, it is the biggest and secondest fastest growing city in the province. It does have drugstore pharmacies in the area, but we could not find any that offer 24 hour service, which would make us stand out. As of now, it has over 21,000 people that make an average annual income of $69,001.10. Young couples with children make up most of the population. In comparison, the target market for Walgreens in the US is women 25 to 54 years old with two children and an average annual income of $48,000. We believe Walgreens has potential in Fort St. John because this “energetic city” is flourishing at such a high
The IRS usually do not need to validate ordinary business transactions since both the involved parties behave on their own self-interests. However, the IRS is skeptic of any transactions when it comes to evasion of estate taxes and international subsidiaries. When two unrelated companies enter in a transaction, they are involved in arm’s length transaction. However, such is not the case for related companies as they may try to distort the price of the transaction to avoid tax burden. As the boundary of tax evasion and tax avoidance is very thin, especially when it comes to estate tax and international subsidiaries, people often tend to topple over to the evasion side. The case of Estate of H.A. True, Jr. v Commissioner of Internal Revenue in 2005 illustrates the difficulty of obtaining the objective of tax avoidance and how expensive the failed effort of tax avoidance can be (Journal of Financial Service Professionals). Numerous cases of tax avoidance and evasion such as XILINX Inc. and H.A. True illustrate the confusion surrounding the arm’s length standards (ALS) and its application to cost sharing agreements (CSAs). In case of XILINX, the court altered its decisions few times considering the uncertainties of the arm’s length standards. Meanwhile the company believed to have satisfied the standards. Due to the complexity of the arm’s length standards, these cases were compared to other similar transactions. However, it is rare to find two identical cases which meet all the criteria. In both of these cases, the court couldn’t pin point what the actual standards of the arm’s length standards were, giving rise to opportunities of tax evasion. To put the arm’s length standards to a simplest form, the standard requires the two related parties to structure their transactions in such a manner as they would if they were two unrelated parties in similar
Investor's, B. D. (2014, Janurary 8). Health Reform Wal-Mart's Way. Investors Business Daiky, p. A14.
A merger is a partial or total combination of two separate business firms and forming of a new one. There are predominantly two kinds of mergers: partial and complete. Partial merger usually involves the combination of joint ventures and inter-corporate stock purchases. Complete mergers are results in blending of identities and the creation of a single succeeding firm. (Hicks, 2012, p 491). Mergers in the healthcare sector, particularly horizontal hospital mergers wherein two or more hospitals merge into a single corporation, are increasing both in frequency and importance. (Gaughan, 2002). This paper is an attempt to study the impact of the merger of two competing healthcare organization and will also attempt to propose appropriate clinical and managerial interventions.
Wal-Mart has taken their mind and cash over the last 20 years to become the world’s largest retailer. Wal-Mart had a base of 2,200 stores in the 80’s, closing out of the 90’s with a bang of 3,600 stores and $4.4 billion in net income. Spurred by NAFTA, Wal-Mart took advantage foreseeing potential growth in the foreign markets. Currently they have stories in the following countries: Mexico, Puerto Rico, Canada...
With Wal-Mart being so outrageously huge in this short of time, I believe that it has not yet settled into their customers why Wal-Mart is so cheap. Wal-Mart will replace higher wage jobs with lower wage jobs and require taxpayer assistance to keep Wal-Mart employees out of poverty. Numerous studies reveal that, contrary to the company's PR, Wal-Mart does not create new jobs when it comes to town. Wal-Mart simply replaces higher paying retail jobs with lower paying ones and, due to its adverse impact upon local businesses, may actually cause a net decrease in job numbers. The factories in China supply their employees with a whopping three dollar...
It’s the largest private employer in USA. And every year approximately of 93% shopping is done from Wal-Mart in America.
Whenever a huge corporation such as Walmart moves into an area with local stores and merchants, all of them are bound to go out of business because all the customers will be attracted to the huge selections and discount. There has been huge protest by these merchants and locals whenever a Walmart is being decided to be implanted there. This hurts their business which can make families go bankrupt and although it can create job opportunities within the Walmart but as you know Walmart has really bad working conditions such as no wages and unfair treatment. Walmart is also to be said to be the most poorly run and understaffed retail store. In previous studies Walmart was shown to be listed as the lowest in customer satisfaction. If you have visited a Walmart previously you might have seen the customers swarming over just 2 or 3 checkout lanes. In recent days Walmart has been better about this by opening more lanes up whenever there are more
... helps employees feel that they have support and comfort. In addition, companies provide scholarships and internship opportunities to each community, which indicates that Walgreens does this to all the 50 states in United States and all the communities.
More than 95 percent of the stores to be closed in the USA are near another Wal-Mart, including all the Wisconsin locations. The company said the stores it plans to close are generally poor performers, and most are within 10 miles of another Walmart. Financial performance is just one of many factors the company took into account when deciding which stores to close. Of the 16,000 associates or employees to be affected, 10,000 will be in the United States. The company aims to place those associates in nearby
Wal-Mart’s FSAs, as mentioned in the case, are its ‘every day low price’ (EDL) philosophy and its so-called ‘exceptional service’. The every day low price philosophy is based on efficiency: efficient processes with suppliers and efficient distribution systems. Furthermore, Wal-Mart negotiates low prices with its suppliers and works with innovative technology. This FSA could be seen as internationally transferable. However, in this case it is only transferable to the point where this strategy was hindered by German rules and regulations. Because of German law, Wal-Mart Germany was unable to expand rapidly and thus
There are financial risks of merging with or acquiring an organization, this is why you must have a strategic plan in place in order to benefit. Companies merge with other companies for one main reason: to make money. A vertical merger happens when a company moves up or down its own product line. The sensible reason for merging with or acquiring a company is that it makes financial sense. In November 2004 Sears and Kmart said that they were going to be merging together; this combination would become the largest retail merger that there is.
Mergers and acquisitions immediately impact organizations with changes in ownership, in ideology, and eventually, in practice. There are multiple reasons, motives, economic forces and institutional factors that can, taken together or in isolation, influence corporate decisions to engage in mergers or acquisitions. The financial risks of merging with or acquiring an organization in another country and how those risks can be mitigated are important issues for corporations to conduct research on. This paper will examine the sensible and dubious reasons for mergers and acquisitions and the benefits and costs of the cash and stock transactions.